There is a chance that the Social Security trust fund will run out of money by 2034 if things continue as they are.
As per reports, it is estimated that by the year 2034, the amount collected from employee withholding taxes will only be sufficient to cover approximately 78% of the funds needed for Old Age and Survivors’ Insurance benefits.
Social Security Limited Earnings Replacement
Individuals who are planning to retire in 10 or more years should consider alternative means to finance their later years. A report from the Center on Budget and Policy Priorities reveals that Social Security typically replaces around 37% of an average American’s previous earnings.
However, despite this, many retirees rely solely on Social Security as their primary source of income.
A recent Federal Reserve report examining the economic well-being of American households found that 79% of retirees have additional sources of income. Among this group, 56% have a pension, 42% receive income from interest, dividends, or rentals, and 32% earn income through labor, such as part-time jobs or freelance work. A significant number of retirees also have a working spouse.
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Challenges for Income-Limited Retirees
Surprisingly, among retirees whose families had earned income, 36% stated that they had worked for pay or profit in the previous month, despite considering themselves retired. The median age of retirees with earned income was four years younger (65) than the median age of all retirees (69).
Unsurprisingly, retirees who have income from sources other than Social Security are more likely to report being financially stable. In 2022, 83% of those with earned income wages, 78% of those with a pension, and 87% of those with income from interest, dividends, or rents claimed to be doing at least okay financially.
According to survey results, the most favorable prospects for financial stability in retirement come from combining multiple forms of passive income. Among retirees who receive a pension in addition to income from interest, dividends, or rent, 96% reported being financially stable. In contrast, only 53% of retirees with no income besides Social Security claimed to be financially secure.
If Social Security does indeed become insolvent by 2034, Americans without alternative retirement income sources may face even greater challenges in meeting their financial needs.
In the event that the structure and amount of Social Security benefits are modified to stretch available funds, a strategy discussed by Republicans in Congress, retirees will need to plan ahead to ensure they can maintain their desired lifestyle in their later years.
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