Will Social Security still be there when you retire?

First, how does the Social Security retirement program work? Generally:

  1. We pay FICA taxes of 6.2% on our wages up to a wage ceiling of $147,000 in 2022 (aka the wage base).
    1. Employers match this amount.
    2. Also, some retirees pay taxes on a portion of their benefits.
  2. The tax revenues go into a trust which pays benefits to current retirees.
  3. If trust income via tax revenues, investment interest on reserves, etc. are less than the benefits paid to retirees, the difference is taken from trust reserves. These reserves have been built up and invested over time during periods where FICA tax revenues exceed retirement benefits paid (surplus years).

So, What’s The Issue?

  1. Demographic headwinds – the system faces several demographic-related “headwinds” to solvency[1], including:
    1. The baby boomer generation is retiring. This results in a disproportional mix of retirees vs. workers, meaning there are less workers paying taxes than retirees needing benefits.
    2. Younger generations are entering the work force later
    3. Households are having less children vs. historical family sizes
    4. People are living longer. Life expectancies in the United States are 29% longer vs. the program’s inception in 1935. 3
  2. Slower economic growth in our advanced economy. Since:
    1. Growth in the economy translates to higher incomes, which translates to higher taxes, economic growth translates to less “stress” on the social security reserves.
      1. There are many factors contributing to slower economic growth i.e., demographic, technological, etc.

Where Do We Stand and How Do We Fix It?

Generally, S.S. trust reserves are expected to last for ~12 years – at which point, ongoing income from tax revenues would cover ~77% of the retirees S.S. paycheck.2

How do we close the “actuarial deficit” to make the system solvent? Since it may be hasty to rely on economic growth to make up the difference, the most likely fix will come in the form of higher taxes and/or reduced benefits.

There have been proposals to: raise payroll taxes by 1%, push-out the “full retirement age” (FRA) to age 70, and to increase the Social Security taxable wage base above current levels. We believe a combination of solutions along these lines are most likely.      

In Summary:

Social Security has been called “The Political Third Rail.”  Politicians have been reticent to propose changes that would result in reduced benefits to their constituents.  Although the system faces potential budget challenges, we believe politicians will ultimately make pragmatic changes when finally forced to do so. 

If you have any questions or would like discuss how your social security benefits fit into your retirement strategy, please feel free to reach out to me at Michael.carbone@raymondjames.com or set-up a 15-minute call.


Michael Carbone, CFP®



1 https://sgp.fas.org/crs/misc/R46479.pdf
2 https://www.ssa.gov/oact/trsum/

Important Disclosures

Regarding Social Security issues, please make sure to talk with your S.S. representative.  Media advice on S.S. is often incomplete, as the rules are very complicated and are subject to change. 

Any opinions are those of Michael Carbone - not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.