Depending on how next week’s presidential election turns out, a new administration will take office in the White House early next year, and one of the first issues it will encounter is Social Security. Social Security has been largely ignored despite an impending funding cliff that could lead to benefits cuts within the next decade, even though both major-party nominees鈥擱epublican former President Donald Trump and Democratic Vice President Kamala Harris鈥攈ave run on a range of platforms to appeal to consumers. The largest direct expense of the US government’s annual budget is Social Security, which is funded by a combination of taxes and trust funds, with $1.3 trillion, or 5% of GDP, in 2023.
Social Security changes
Nearly 70 million pensioners, disabled people, and surviving family members of deceased employees get income from it each year. Experts told Newsweek that the depletion of trust assets in the Old Age, Survivors, and Disability Insurance (OASDI) program is a problem that should be addressed by the next government. The latest annual report from the Social Security Administration’s Office of the Inspector General suggests that if a solution is not found in the coming years, payouts might be cut by 21 per cent in 2034. Despite its significance, the current presidential campaign has paid little attention to Social Security.
The future of benefits is a major concern for the vast majority of voters and plays a significant role in later-life incomes, but neither candidate has directly addressed how to solve the nation’s impending funding cliff, despite their proposed tax plans that include raising payroll taxes for America’s highest earners and eliminating payment levies. Furthermore, if the SSA’s solvency is not addressed, a retired couple with “medium income” who cease working in 2033 may lose $16,500 from their annual retirement stipend, according to a September statement from the nonpartisan public policy think tank Committee for a Responsible Federal Budget (CRFB). Americans typically receive more than 40% of their retirement income from Social Security benefits.
The anticipated 20% reduction in payouts will significantly affect many retirees’ capacity to maintain their lifestyles if deficits are not addressed, according to Stephen Kates, lead financial expert for RetireGuide.com. Financial issues have previously plagued the SSA; the early 1980s saw yet another dire necessity for the federal agency. To safeguard the SSA for the next 80 years or so, then-President Ronald Reagan began revisions in 1983. The Greenspan Commission on Social Security Reform was established to examine the issues and offer a solution that would extend the program’s sustainability for many years. It was initially scheduled for 2060, more than 80 years ago.
Burt Williamson, a retirement specialist at Connecticut-based advisers PlanPrep, told Newsweek that the next president might tackle the issue in several ways. As soon as they were in power, he said, they should issue an executive order appointing a commissioner to head a bipartisan committee that would evaluate the situation and be charged with coming up with workable solutions.
Possible solutions for the Social Security system
According to Williamson, lowering the payroll tax cap鈥攚hich is $176,100 for 2025 and $168,600 this year鈥攕lowly and gradually will ease financial strains. The current income tax rate on this amount is 6.2 percent, and both employers and employees pay this tax directly to Social Security. Medicare is funded by the remaining 1.45%, which is not capped. Additionally, Williamson emphasised that while the proposed reforms may be divisive among those impacted by the higher payroll tax, they will significantly affect the top 6% of wage earners and their companies, generating substantial wealth.
Investing up to 10% of future inflows into a longevity account is another strategy to grow for the future. Williamson explained that this would be a side portfolio as part of the Social Security trust fund, not privatisation and that a nonpartisan committee might be assigned to manage it. He added that it shouldn’t be possible for other government accounts to borrow money from it. Project 2025’s conservative research group, the Heritage Foundation, proposed raising the retirement age as a means of generating more revenue. The American Academy of Actuaries suggests that increasing the 6.2 per cent tax contributions to 7 per cent is an additional option.
