May 31, 2019, 10:04 a.m. EDT

Don’t believe this myth about Social Security

The program has issues, but it’s not as far gone as some people think

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By Alessandra Malito, MarketWatch


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Social Security may run out of money by 2035, if Congress doesn’t act.

Many Americans believe Social Security won’t exist when they retire — they’re wrong.

Social Security does face serious challenges, and the payout may decline — but the program itself is not going anywhere. The two trust funds that pay Social Security’s benefits — the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) trust funds — are running out of money, and the Social Security Administration’s trustees do anticipate those accounts will run out of money in 2035.

But if that happens, Social Security benefits won’t disappear. If Congress does nothing to fix the program, Social Security will rely on the taxes coming in and Americans will just get less of a benefit.

See: One reasons lawmakers are hesitant to fix Social Security: the millennials

When the funds are depleted, Congress has a few options: it can pass a law to keep benefits at the same level, which would increase the country’s deficit, or it could choose to raise the age that Americans get benefits or increase payroll taxes. If nothing is done, which experts say is unlikely, all beneficiaries would get 80% of scheduled benefits, according to the Social Security Administration’s trustees report released last week.

Some Americans rely on Social Security for most of their retirement income, instead of leaning on their own savings, any pensions and the program’s benefits. Social Security benefits made up 61% of retirement income for elderly beneficiaries, and a third relied on the program for 90% or more of their income, according to the Center on Budget and Policy Priorities. Americans are drastically undersaved for retirement, with some couples having only $5,000 put away. Not all workers save in an employer-sponsored retirement plan, and only 14% of employers (mostly larger companies) offer one.

Social Security is crucial for many Americans, especially as they get older. Seniors might still have an opportunity to work in the first few years of retirement, but those choices narrow over time, wrote Benton Smith, founder of the website Fix Social Security Now. Social Security keeps the elderly living a modest lifestyle with dignity, according to testimonies at the House Ways and Means Social Security Subcommittee hearing earlier this month, especially as their savings start to dwindle, they may have never gotten pensions and their expenses for living — especially health care — continue to rise.

“It makes no sense to have such a critical program that is relied upon by so many Americans to be in poor financial shape,” said Michael Peterson, chief executive officer of the Peter G. Peterson Foundation, a nonpartisan policy organization focused on the country’s economic future.

Costs are expected to exceed income next year for the first time since 1982, and will likely continue to overshadow income as more older Americans retire. Still, the year in which the funds would run out was pushed to 2035 from last year’s estimate of 2034, according to the report. “They should feel confident the program will be there for them when they need it,” said Webster Phillips, senior policy analyst at the National Committee to Preserve Social Security & Medicare. Another reason to be assured: politicians are slowly beginning to talk more about the issue, he said.

Don’t miss: How likely is it that Social Security will go broke?

Lawmakers have introduced numerous bills to fix Social Security, including Connecticut Democratic Rep. John Larson’s Social Security 2100 Act and Vermont Independent Sen. Bernie Sanders’ proposal. Allowing Social Security’s trust funds to fall short would create massive chaos, and affect all retirees, as well as widows, children whose parents have died, and those with disabilities, said Kathleen Romig, senior policy analyst at the Center on Budget and Policy Priorities, a progressive think tank. “Even if it comes down to the eleventh hour, they’d fix it at the eleventh hour,” she said.

Of course, a reduction in benefits is detrimental, but it’s better than receiving nothing at all — and nothing is what many Americans expect, Romig noted. More than three-quarters of Americans said they are concerned Social Security will not be there for them when they are ready to retire, according to a Transamerica survey last year . Another 41% of workers who are planning to work in retirement or past age 65 said the reasons for doing so include concerns that their Social Security benefits would be less than expected.

Also see: What you probably don’t know about Social Security

Workers can get an idea of how much they should expect to receive in Social Security by creating an account with the Social Security Administration. Current retirees should estimate how much a 20% to 30% reduction would leave them with in benefits, and try to create a plan to compensate for that gap, Ric Edelman, executive chairman and co-founder of Edelman Financial Engines in Fairfax, Va. told MarketWatch.

Alessandra Malito is a personal finance reporter based in New York. You can follow her on Twitter @malito_ali.

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