The time is finally here. It’s when the chickens come home to roost. In most of the financial blogs of late concerning Social Security, it’s been nothing but doom and gloom. Everyone is scared the trust fund will run out of money, and suddenly, Social Security will go away.
We’ve been reading about this for a long time. Economists have sounded the alarm many times over the years about the imminent insolvency of Social Security if fixes aren’t put into place to shore up the deficiencies.
If you allow the media to guide your thinking, you might be in this train of thought – and you would be very wrong. Let me explain. Social Security will indeed see a first in 2021. It is the first year it will outlay more than it brings in from payroll taxes. It was not unexpected.
Contrary to popular opinion, Social Security will never go bankrupt as long as people work and pay taxes. The real problem is not enough money is flowing back into the trust fund, causing the shortfall and leading to the cuts in benefits.
According to the fool.com, 2020 is the year Social Security should break even, but at some point during the year, it will start running in the red. That means Social Security has been running a surplus until this year. A far cry from the death knell of the plan forecasted by so many.
Time for Some Truth and Good News
Make no mistake. If we expect Social Security to perform as designed, it needs some help. But, the truth is the program is not broke and won’t go broke. The worst-case scenario for the foreseeable future is reduced benefits if no changes to the system happen at all.
Even with all the bad news about Social Security, Congress has the power to fix it for good. That is the most significant sticking point in this whole mess. Republicans and Democrats don’t show any sign of a willingness to come to the table and talk it out.
It looks like some drastic changes will come about to force the issue. Congress can’t keep kicking the proverbial can down the road. The end of the road is here and now. Many wonder how the Coronavirus will play into all of this.
Coronavirus and Social Security
More doomsayers joined in the chorus of using the pandemic as convincing evidence of the demise of Social Security. While it’s true that fewer people working means a drop in payroll taxes to pay benefits, more pressure on Congress to act should be a good thing.
Pointing fingers of blame at high earners or baby-boomers for the funding shortfall of Social Security proves no one yet has the right answer to advance an agenda to address this elephant-in-the-room scenario we find ourselves dealing with every election cycle.
Whenever this gets settled, higher taxes will be front-and-center, with many willing to fight to keep the changes and those to challenge them. The magic bullet is higher taxes, raising the retirement age, or both, and everyone knows it’s the only way to fortify the system for the coming years substantially. Of course, with an easy answer like raising taxes, people wonder why it took years to fix a years-old problem.
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