Social Security May Shortfall of Money Sooner

Social Security is on a big deal when it comes to financial well-being for America's retired workforce.

The top social program celebrated its 85th anniversary since it was signed into law. Social Security's program is responsible for giving monthly benefits to more than 64 million people. There are 7 in 10 of whom are retired workers who pulled above the federal poverty line. But its program is staring down as Social Security funding obligation shortfall of a whopping $16.8 trillion. At the same time, the $2.9 trillion asset reserves are expected to be exhausted by 2035.

These financial troubles are not a threat to Social Security's program and its ability to exist because it has three sources of funding, in which the two are recurring: the taxation of benefits, and the 12.4% payroll tax on earned income. Many money would be flowing into the program for disbursement to eligible Americans, even if the program's asset reserves were consumed.

Last week, the Congressional Budget Office (CBO) released a nine-page analysis that examined all of the significant federal trust funds' outlook. Social Security is expected to look much worse than what the trustees pictured, as per the CBO.

According to Motley Fool, like the trustees, the CBO expects Social Security to start spending more than collecting in revenue in 2021. The CBO's foretell quicker deterioration in the $2.9 trillion in asset reserves in the Social Security program. The combined Disability Insurance (DI) Trust and OASI are slated to spend $120 billion more than its collection in 2021 alone. By 2030, this annual OASDI outflow will increase to $384 billion.

The DI Trust will exhaust its asset reserves in 2026. And the OASI Trust will exhaust asset reserves in the 2031 calendar year. Meaning, we might be 11 years away only from expensive benefit cuts for retired workers than the 15 years projected by the latest Trustees report, according to the CBO.

Why is Social Security in trouble?

Social Security's financial problems can be directly traced to different macroeconomic trends that are not often in the spotlight. Growing income inequality is a good example. Social Security has plenty of funds and seems to benefit most from the program. However, it's primary purpose is to provide a financial foundation for low-to-middle-income Americans during retirement. The well-to-do have little to no financial restrictions when it comes to receiving preventive care or prescription medicines. They are the outliving lower-income workers. Historically low birth rates are a different matter. The Social Security program has a certain number of births each year to maintain a steady worker-to-beneficiary ratio for the future generations of workers who will retire then. But for some complicated reasons, birth rates have been dramatically falling for a decade that threatens to lower the worker-to-beneficiary ratio.

Social Security relies on a steady influx of legal migrants in the U.S.; even immigration plays a role. This is to help offset some of the retiring workers. Since most legal immigrants pretend to be young, they will spend decades in the labor force-generating payroll tax revenue. But the average number of legal immigrants in the U.S. has halved and continues declining over the past two decades.

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