People who work and pay Social Security taxes are concerned that these retirement benefits may become exhausted before they are eligible to retire. Based on the latest annual report from the Social Security Board of Trustees, there are emerging financial challenges facing the long-term future of this program. It is helpful if people know the purpose of the Social Security program, who the program covers, how the funds are collected, and how the funds are expended to understand the potential funding concerns.

What is the Function of Social Security?
President Franklin D. Roosevelt enacted the Social Security Act in 1935 to provide senior citizens with retirement benefits when they left the workforce. That initial function remains in effect today with a number of amendments and changes on who can receive benefits, the age range for benefits, the payroll tax percent deducted, and how the payroll taxes are used.

Who is Eligible for Social Security Payments?

Social Security payments are divided into two major sub-programs known as OASDI, Old Age, Survivor, and Disability Insurance.

One sub-program is called OASI, Old Age and Survivor Insurance. For these payments, individuals become eligible by reaching qualifying retirement age and number of years worked. Standard OASI payments are available to those individuals who have worked and paid into Social Security for 10 years and are at least 62 years old. Other individuals eligible for OASI payments include those listed below.
• Surviving spouses and children up to the age of 16 when the working spouse dies
• Spouses that are 60 years old or older
• Ex-spouses that are 60 years old or older with at least 10 years of marriage and have not remarried
• Disabled spouses that are age 50 or older
• Disabled ex-spouses that are age 50 or older and have not remarried
• Parents that are 62 years old or older who received at least 50 percent of their income from the deceased worker

The other sub-program is called DI, Disability Insurance. In this program, individuals receive payments based on their qualifying disabilities that limit or eliminate their ability to work and earn a living.

How is Social Security Funded?
There are three sources of revenue that fund both the OASI and DI sub-programs of the Social Security system:
• 88% of the funds come from payroll taxes paid by employees, the matching employer taxes, and the taxes paid by self-employed individuals
• 4% of the funds come from the taxes paid on benefits received by Social Security recipients
• 8% of the funds come from the interest earned on the monies in the two trust funds

If these three sources of revenue are not sufficient to meet the full amount of payments, funds need to be drawn out of the trust funds.

What is the Future Outlook for Social Security?

According to the current annual report from the Social Security Board of Trustees, 2020 will be the first year that payments for retirement benefits will exceed the incoming revenue. This means that the Social Security Administration will need to draw from the vested trust funds. Without any corrective actions by the Congress, the projected future of the combined OASI and DI funds will be exhausted by 2035. Individually, the OASI program will be exhausted by 2034 while the DI program will be viable until 2052.

Depleted reserve funds will not mean the end of the Social Security program. The projected income from payroll taxes is estimated to be able to continue payments to enrollees at less than the full benefits currently received. The outlook without any Congressional changes will see monthly payments reduced anywhere from 13-24%. Potential actions that can sustain the program at full payment levels would include increasing the payroll tax percentage, eliminating the salary cap when workers stop paying Social Security taxes, or a combination of these actions.

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