Imagine working hard your whole life and counting on Social Security to help you when you retire or if you can’t work because of illness. Now, imagine learning that the money set aside for this might not be enough to cover everything in the future. That’s exactly what’s happening right now in the U.S., and it affects millions of people. In this article, we’ll explain what’s going on with Social Security, why there might be a big problem soon, and what possible solutions are being talked about. So, keep reading if you want to know what will happen with your Social Security benefits.
What is Social Security and what’s going on?
This is a government program in the United States that helps many people with their economic situation, especially when they get older and stop working or if they get sick and can’t work.
But now there’s a problem: the money that Social Security uses to pay people is running out faster than expected. If nothing is done, by the year 2033, one of the important funds could run out. If that happens, people won’t get all the money they were promised, only part of it.
Where does Social Security money come from?
The money comes from three places:
- A tax taken from workers’ paychecks (a small percentage saved for Social Security).
- Taxes on Social Security benefits.
- Money earned from interest on the funds (like when you keep money in a bank and they pay you a little extra).
Social Security has two main funds where this money is kept:
- The first fund is used to pay benefits to retired workers and their families, and also to survivors if someone who was working passes away. This helps make sure people have money to live on after they stop working or if their family loses a loved one.
- The second fund helps disabled people who can’t work.
What happens if the money runs out?
If the main fund runs out in 2033, only 77% of the scheduled payments can be made. That means if someone is supposed to get $100, they would get only $77. If both funds are combined, they could pay 100% until 2034, but after that, they would only be able to pay 81%.
What are the possible solutions?
To keep Social Security running for much longer, workers would have to pay higher taxes. Right now, they pay 12.4% of their income (usually split between the worker and their employer).
If they want the program to last another 75 years, that tax would need to go up to 16.05%. This means a person working their whole life (about 45 years) would pay around $110,000 more in taxes.
If they want it to last forever, the tax would increase to 17.6%, which means paying over half a million dollars in total taxes during their working life just for Social Security.
What do the experts say?
A group of experts said that keeping Social Security benefits exactly as they are is very expensive for younger workers, so changes will have to happen soon.
Two senators proposed creating a new investment fund with $1.5 trillion to invest in things that bring higher returns, so the program can last longer. They say it’s important to act now before the problem becomes too big.
Why is this important to understand?
Because Social Security is not only for older people, everyone who works or will work should care as they could benefit from this in the future. So, whatever is changed now will affect the money we will receive in the future. Do you think it is a good idea to increase the tax percentage?