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According to the 2018 annual report  of the Social Security administrators, the trust funds that pay for retirement benefits , disability benefits, among others, will be exhausted by 2034. That does not mean that Social Security will cease to exist; Instead, the system will deplete your money reserves and you will only be able to pay what you receive each year from Social Security taxes. If this happens, Social Security will be able to pay about 77% of the retirement benefits to which workers are entitled, and 96% of the disability benefits.

The money in the trust funds – one for OASDI, or “Senior and Survivor Insurance” (the official name for benefits paid to retirees and their families), and one for disability benefits – comes from three sources:

  • 88%, of 12.4% of Social Security taxes paid from most of the income of workers in the country: FICA taxes on payroll (and proportional contributions from employers) or SECA taxes, which pay the people who are self-employed, using IRS tax returns.
  • 4% of the income taxes that Social Security recipients pay from their benefits .
  • 9%, of interest on the money of the fiduciary funds.

The trust funds had $ 2.9 trillion ($ 2.9 trillion) in reserve at the end of 2017, but the benefit payments being made increasingly exceed revenue due to demographic and actuarial trends. Large numbers of boomers swell the ranks of retirees (in addition to living and collecting benefits longer), and due to the low birth rates of subsequent generations, fewer workers contribute to Social Security.

If no changes are made, the system will end its reserve funds by 2034. For years, lawmakers and policy experts have debated proposals to increase Social Security finances. Most fall into two general categories: changing tax policies to direct more money into trust funds, or making adjustments to the benefit formula to reduce costs (or a combination of both). The AARP report “The Future of Social Security” summarizes a dozen ideas that are the subject of discussion in Washington.

Remember that

The FICA and SECA taxes also generate a source of income for Medicare, which flows into the trust fund that funds Medicare Part A (hospitalization coverage). As detailed in the 2018 Medicare Trustees report  , that fund is under much of the same pressure as Social Security trust funds because of demographic trends and rising costs.

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