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Social Security Will Be “Depleted” in a Decade. Don’t Freak Out

Here's what "depleted" actually means when it comes to social security and your retirement.

On Tuesday, a new report by the Social Security Administration revealed that the pool of Social Security benefits has been “significantly affected” by COVID-19 and the economic downfall of the virus. The announcement stated that the benefits are set to be “depleted” by 2033, a year earlier than what was previously suggested largely due to the COVID-19 crisis. And while these headlines are certainly terrifying, they’re not really the whole story.

In fact, the term depleted is misleading.

So, what does it actually mean that these funds are running low on cash or that they’ll be depleted or insolvent in a decade? Will you be able to retire and receive government benefits? The answer to both of those questions is actually not much and yes. Here’s what you need to know. 

What “Depletion” Actually Means

For the Old-Age and Survivors Insurance Trust Fund, the part of SSI that pays retirement and survivor benefits, “depletion” means that the program will only be able to pay out around 76 percent of scheduled benefits.

The Disability Insurance Trust Fund will be able to pay full benefits until 2057. After that point, SSI will only be able to pay out 91 percent of those benefits.

The scenario is not that SSI will go away after these years. Instead, in the worst-case scenario, they will only be able to pay out a fraction of the benefits.

Really, per Helaine Olen’s writing on the subject in 2018 when people were freaking out about social security becoming insolvent then, too, the obvious worst-case scenario is that Social Security will run out of reserve funds at that time, and then they’ll rely on future payroll taxes, paying out those 70-ish percent numbers mentioned above in the piece.

In other words, there’s not a future scenario, or a near-future scenario, where funds are depleted entirely and no one gets any social security at all. Does that mean this is good news? No! But it means that the future is absolutely not inevitable.

Why Is This Happening?

Simply put, baby boomers, a massive generation living longer than their parents did, are starting to retire — and the pandemic put lots of boomers into early retirement, as they decided to stop working instead of putting themselves at risk of death. That takes them off the payroll tax list. In the pandemic, where 625,000 people have so far died, tons of people lose loved ones and spouses, putting them on SSI benefits and taking people off of payroll tax rolls there, too.

Add that to mass unemployment, a few generations of tax cuts, and a smaller working generation than before. The baby busts that followed the Boomer generation have lead to a smaller pool of payroll taxes going into the program, and you have a program that has to serve more people than ever while not being replenished to the level that it “needs to be.”

But, ultimately, there’s still no need to panic, at least not yet. Here’s why.

The Government Can Do Many Different Things to Help SSI Thrive

The government has plenty of time to act before Social Security and Medicare are depleted, and they can step in in a number of ways.

The government could raise payroll taxes, or enact a wealth tax in order to better fund the program when it is “depleted” in a decade or so, or they could simply deficit spend in order to fill the gap.

The easiest way would be to raise the payroll tax cap. The Social Security payroll tax cap is at $128,400, meaning that people are only paying into SSI up to that dollar that they make. This puts an unreasonable burden on middle-class and working-class earners and no burden on upper-middle-class and higher-level earners to pay into the shared retirement program. Raising that cap is one of the easiest ways to safeguard SSI.

The other reality is that there’s SSI could simply be paid out of general revenue or taxes. The government could change that tax law, or simply deficit-spend to pay out retirement benefits through SSI.

So when you hear things like “Social Security will be depleted,” it’s not even close to the full story of what’s going on. You will receive benefits when you retire in some form.

If the government acts, they’ll look just like what your parents had — and maybe even better, if lefty politicians like Bernie Sanders, who have been trying to boost the benefits for quite some time, get their way.