Social Security Going Bankrupt: What You Need to Know
Despite assurances from some politicians, today’s citizens cannot rely on Social Security to fund their retirement years. The country’s shifting demographics simply make it impossible for the entitlement program to continue as is. That means people of all ages should prepare to pay for retirement on their own by saving money and investing in diverse opportunities.
Social Security Is a Massive, Underfunded Program
The federal government spends more money on Social Security than any single program. For 2015, the government is budgeted to spend about $3.76 trillion. Social Security makes up about 26 percent of that budget. Defense accounts for about 22 percent. Medicare and Medicaid combined accounts for about 27 percent.
The federal budget shows that Social Security is a massive program that requires extensive spending. Despite its large budget, Social Security remains underfunded. Unfortunately, many experts believe that this will soon lead to the program’s bankruptcy.
Social Security Bankruptcy Is Nearly Inevitable
Until recently, the U.S. government’s annual tax revenue was high enough to fund Social Security. That changed in 2010 when Social Security expenses exceeded tax revenues. The government can fill this gap for several years, but it cannot support an underfunded program forever without raising tax rates.
Paying for Social Security outlays is impossible under the current system. According to a nonpartisan report from the Congressional Budget Office, the gap between expenses and revenues will grow quickly over upcoming decades.
Changing the Social Security system may keep it functional, but those changes will likely include eliminating retirement payments. Social Security pays for Disability Insurance and Old-Age and Survivors Insurance as well as retirement benefits. These programs provide an essential safety net to the country’s disabled and elderly residents. Sacrificing retirement benefits is perhaps the best, if not only, way to save those indispensable services.
No matter how much it resists this inevitability, the government will have to close Social Security retirement benefits in the near future or risk losing the entire program.
Retirement Solutions Beyond Social Security
Knowing that the Social Security system will bankrupt itself gives you a chance to think about how you will fund your own retirement. Some of the most important options include:
- Contributing to a 401(k) or 403(b) plan
- Opening a Roth IRA account that lets you earn money while lowering your income tax rate
- Starting a diverse investment portfolio
With these investment and saving options, your money can grow exponentially as you earn interest or reinvest your profits.
Social Security may have a few remaining years. With the right deals, Congress could potentially extend retirement benefits for a decade or more. Eventually, though, the politicians will have to admit that Social Security is bankrupt and it cannot support the country’s retirees as it once did. This will hurt a lot of households. People who use their money wisely, however, should still have the funds they need to enjoy retirement.
Ruben Cobos