Social Security 101: The Future of Social Security

March 13, 2018

“Will Social Security be there when I retire?”

It’s a question you’ve probably been asking yourself for a while now—and you’re not alone in your concern.

According to a 2014 Pew Research Center survey, 51% of your fellow millennials said they didn't believe that there would be any money for them in the Social Security system by the time they're ready to retire. Fast-forward three years, and their outlook has become even bleaker: According to an Investopia survey conducted last year, 81% of millennials weren't confident that they would receive Social Security benefits when they retire.

Clearly we’re all a little, um, unsettled about our future retirement prospects. So, what really is the deal with Social Security? Do we have a reason to feel this way?

Unfortunately, we kind of do. It turns out the Social Security trust funds that pay retirement and disability benefits could potentially be depleted by 2035—no bueno for those of us retiring in 2040 or later. The reasons for this are numerous, but some of the problem is attributed to longer life expectancies, and fewer people entering the workforce to compensate for an increasing number of retirees. [Yep—it turns out the demographic factors affecting PERA’s defined benefit plan–while great for all of us individually—are the same ones threatening the Social Security system’s future stability. Talk about a double-edged sword.]

Depleting the Social Security trust funds doesn’t necessarily mean that the system will run out of money entirely, though; payroll taxes are expected to be able to cover about 75% of scheduled benefits (this is where the pay-as-you-go design of Social Security that we mentioned in our previous blog comes in). However, if that gap isn't filled, retirees (a.k.a. all of us 30+ years from now) could receive a smaller Social Security benefit, and/or those still in the workforce could end up having to pay more into the system.

And what exactly would that cut in the Social Security benefit look like? According to the 2016 annual report from the Social Security Administration’s Board of Trustees, benefits would likely be reduced by 21%—which, given that Social Security is the dominant source of income for 71% of single elderly recipients, is pretty darn significant.

But that’s all assuming that nothing is done to address the issue before 2035. With defined benefit plans becoming increasingly scarce, more and more people are having to rely more heavily on Social Security in retirement. It’s certainly not recommended to rely too much on any one “leg” of your retirement stool, but the silver lining to this dependence on Social Security is that it will *hopefully* force the government to institute a solution sooner rather than later.

For all the PERA members reading, you'll thankfully have your monthly benefit to lean on in retirement. It’s one of the, well, benefits, of paying into PERA instead of Social Security. But, seeing that it's likely you’ll also be touched by Social Security in some way—through your job(s) before or after PERA employment, through your spousal benefit—it’s important to have a sense of what the outlook of the system is. For everyone’s sake, we're hoping that outlook gets a bit brighter.