In a recent report, the Cato Institute has warned that the Social Security program’s funding shortfalls could result in significant financial sacrifices for young American workers.
What Happened: The Cato Institute has projected that the Social Security Trust Fund will run out of funds in the next decade, potentially leading to a crisis for the program, reported Newsweek. Younger workers may need to bear significant financial burdens to sustain the program for both current and future recipients.
The report indicates that, without reforms, young workers may have to contribute much more throughout their careers to sustain Social Security. If the system remains unchanged, they could lose the equivalent of $110,000 in lifetime earnings through increased taxes and/or reduced benefits.
The report's findings draw on the latest projections, which show that the Social Security Trust Fund is likely to run out by the mid-2030s. The main reasons are an aging population—especially the retirement of Baby Boomers—and a declining number of younger workers contributing to the system.
The Cato Institute suggests that maintaining Social Security in its current form would require an immediate and permanent 3.65 percentage point increase in the payroll tax rate, from 12.4 to 16.05%. This would close the program’s $25 trillion funding gap and allow scheduled payments to continue.
“That means less discretionary income in each paycheck, which could have ripple effects on their day-to-day finances and long-term savings,” Kevin Thompson, CEO of 9i Capital Group, told Newsweek.
With the looming crisis, Congress and the public are preparing to debate potential reforms, such as reducing benefits for higher earners, raising payroll taxes, and adjusting the retirement age.
Why It Matters: The future of Social Security has been a topic of concern for Americans. A recent survey by AARP found that 78% of Americans fear their Social Security checks won’t cover basic living costs. This is especially worrying given that two-thirds of today’s retirees rely substantially on their monthly benefits, up from about half in 2005.
Meanwhile, a new rule by the Social Security Administration could see beneficiaries who previously received excess payments facing a 50% cut in their monthly checks. This could further exacerbate the financial strain on retirees.
However, there may be hope on the horizon. A bipartisan proposal by Senators Bill Cassidy and Tim Kaine aims to secure the program’s finances without reducing any benefits. The proposal outlines a new $1.5 trillion investment fund separate from the current Social Security Trust Fund, which could provide a much-needed solution to the program’s looming shortfall.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
