Social Security Funds Are Expected to Run Out by 2033
- A report released in early 2021 indicated that the money in the Social Security Trust Funds is expected to run out by 2034.
- If the social security funds were to run out, 40% of retirees would have no access to income.
- It is crucial to start investing as early as possible to ensure you have sufficient money to cover your expenses during your retirement.
An annual trustees report released by the Social Security Board of Trustees stated that the Social Security Trust Fund will run out of money by 2033. The reason? First, more than half of the 71 million baby boomers in the U.S. are collecting or set to collect Social Security. Second, the COVID-19 pandemic has forced the U.S. to provide funds to an increasing number of people in need. The excessive amount of money being paid out to citizens has been more than the government has received in taxes, and as a result, it has caused the Trust Fund to lower in value.
How Does Social Security Work?
When employees receive a paycheck, there are payroll taxes that are deducted from their gross pay. This money goes to the United States government and is used to pay for the taxpayers’ benefits and retirees. In addition, there are two funds set up to give funds to people who are in need, the Old-Age and Survivors Insurance (OASI) Trust Fund and Disability Insurance (DI) Trust Fund.
Once the tax revenue is received from millions of employees, the funds are used to make scheduled benefits payments to those part of the two trust funds mentioned above. Whenever there is excess money left over, it is then invested in low-risk investments entirely backed by the federal government. These funds will remain in low-risk investments to make them grow over time.
Benefits Remain Active Until 2033
The government has sufficient funds to pay benefits until 2033. However, the pandemic heavily affected the social security program. Due to the fact many people were unemployed and were in need of money. The government used the funds held by the trust funds to pay benefits to those in need to help stimulate the economy.
As a result of the lower number of people working during the pandemic, it led to the government spending more money than earning through social security taxes, leading to them losing money. Also, because the government will continue to pay social security benefits to retirees, it expedited the depletion of the funds. This expedition led to the estimate by many professionals that the Social Security Trust Funds will be depleted by 2034, a couple of years earlier than anticipated.
What Will Happen After the Social Security Funds Run Out?
If the government does not propose a reasonable solution by 2033, the ripple effects will be severe. For example, a study done by the National Institute of Retirement Society (NIRS) determined that 40% of retirees rely solely on their social security income. Without access to these funds, many people are left in challenging financial situations.
Why it is Important to Invest
If there is one thing that this situation has taught us, you should always expect the unexpected, plan ahead, and nothing in life is permanent. At any moment, a necessity of ours can be taken away. Therefore, it is essential to have a safety net in case everything else fails.
That’s why investing as soon as possible is critical to having a comfortable retirement. The sooner you invest, the more wealth you can build for yourself and your future generations. There are different types of retirement accounts that you can use to plan out your retirement money. By doing so, you don’t have to rely on others, or the government, to give you paychecks.
Recommended Read: Investing for Beginners: A Complete Step-by-Step Guide
The government still has money left in the trust fund to provide steady paychecks until 2033. With that said, the way they will resolve this situation is still unclear, so make sure you are using your money accordingly and investing it. By investing money, you are allowing yourself to create passive income, and this way, if the government fails to come up with an amicable solution to the problem, you are still financially independent and can support yourself when you’re retired.
What do you think the government will do to ensure social security funds do not run out? Let us know in the comments below.