People have been hearing for years that Social Security is underfunded and will run out of money so News 3 asked Carl Carlson, CEO of Carlson Financial, if there is going to be any Social Security left when younger generations retire.
Carlson said Social Security is not going away. Most Social Security benefits paid out each year come from current workers paying payroll taxes. As long as people keep working and paying taxes, Social Security is in no danger of running out, he said.
The Social Security cash reserves are projected to run out within the next 20 years. These reserves have been built up over time when taxes collected have exceeded the benefits paid out, creating a surplus. Right now, we are in a time where the benefits being paid out are more than what’s coming in, so the reserve fund is being drawn down.
When the fund runs out, the system will still be able to pay 75-80% each year, Carlson said. That’s still a big deal, but the system isn’t going to zero, it would go to 75%. That’s the worst-case scenario. He said there is still time for changes to be made like pushing back the retirement age, raising taxes, etc. Additionally, the proposals we have seen so far suggest that the benefits cuts would primarily impact people who are 10+ years from retirement, those in their 30s and 40s.
Younger workers should plan for a Social Security cut by budgeting. Carlson said it is important to save and invest for their own retirement.
Social Security was only ever designed to replace about 40% of an average worker’s salary in retirement and it may be less than that in the future. So the biggest threat to someone in their 30s and 40s isn’t that Social Security gets reduced, it’s that they don’t save enough or get the market returns they need, Carlson said.
