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Challenges Ahead, Social Security Grapples with Declining Reserves and Political Hurdles

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Social Security, vital to millions of Americans, has hurdles as it prepares to accomplish something it hasn’t done since 1981.

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Social Security Faces Declining Reserves Amid Demographic Challenges

The program, which lifts millions out of poverty, is losing asset reserves. After the 1983 reorganization, Social Security‘s reserves rose until 2021, when they fell $56.3 billion and $22.1 billion in 2022. The three-year decrease of $33.2 billion to $2.797 trillion as of October 2023 is concerning.

Asset reserves excess cash amassed over years must be placed in government bonds with interest. The interest on these bonds, payroll taxes, and benefit taxes fund Social Security. The program is affected by demographic developments like declining legal immigration, low birth rates, and rising economic disparity. As boomers retire, the worker-to-beneficiary ratio is under pressure, and payroll tax exemptions increase the revenue gap.

Social Security is not bankrupt, but benefit cuts a decade from now are a concern. The Old-Age Survivors and Insurance Trust Fund may exhaust its reserves by 2033, requiring benefit cutbacks of up to 23%, according to the 2023 Trustees Report. Demographic issues may continue to reduce asset reserves.

READ ALSO: The Most Important Retirement Table You’ll Ever See

Political Divide Stalls Social Security Reform Amid Financial Concerns

Lawmakers want reform, but politics stand in the way. Democrats want to raise the high-earner payroll tax and change the inflation calculation to boost benefits. Republicans favor progressively raising the retirement age and using the Chained CPI to adjust inflation. Both solutions fail to address Social Security’s current issues.

The bright side is that Congress has historically supported and reformed Social Security during crises. The existing ideological split may harm Social Security’s financial health before reform can improve it.

READ ALSO: Social Security Hasn’t Done This Since 1981. Should Beneficiaries Be Worried?

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