After the Social Security board of trustees released their April report on the health of the program, it became very clear that the system is in grave danger. Some of the most important parts of financial security for millions of Americans are uncertain about their future, and efforts to fix them are taking too long.
To keep the program going for future generations, the problems that are stopping the system from working must be fixed. Here are some of the most important problems the system is having that need to be fixed right away:
Demographic Shifts
The baby boomer group is getting older, which has caused a big change in the population: more people are retiring than are working age. That’s why fewer people are working and getting Social Security payments while more people are getting benefits through payroll taxes. This change puts more stress on the system and needs careful thought and planning to make sure it can last in the long run.
Social Security Fraud and Mismanagement
Fraud and overpayments only make up a small part of Social Security payouts, but they still cost a lot of money. Taking care of these problems through good management and recovery efforts is important to keep the program’s trustworthiness, especially as technology improves and scammers get smarter, as we saw with the EBT program.
Common Misunderstandings
Misconceptions and misinformation about Social Security’s operations and challenges can hinder productive policy discussions. This is why it is imperative to have clear and accurate information is crucial for fostering informed debates and implementing necessary reforms to secure the program’s future.
Impact of Low Interest Rates on Social Security Trust Funds
The Social Security trust funds buy government bonds, but when interest rates are low for a long time, the returns on these assets are low. This lowers the amount of money that is available, making the program’s money problems even worse. Getting the economy back on track is very important for the program’s success.
Challenges in Social Security Disability Insurance
The Social Security Disability Insurance (SSDI) program is having trouble making ends meet because more people are filing claims. To make sure the program stays alive, it needs better management and strategy changes. A better understanding of what people need from healthcare could also help speed up the process and save money by preventing problems before they happen.
Income Inequality
Income inequality significantly impacts Social Security revenue. The cap on taxable earnings means that high-income individuals contribute a smaller portion of their total income to the system. In 2024, this cap is set at $168,600, limiting the potential revenue from higher earners and impacting the program’s overall funding.
Cost-of-Living Adjustments
Cost-of-Living Adjustments, or COLAs, are meant to keep Social Security payments equivalent to what people can buy. But they put a strain on the system’s finances as well. The current way of figuring out COLAs, which is based on the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers), might not show the real inflation that seniors are facing, especially when it comes to health care costs.
It would cost more up front to change the benefits to reflect the CPI-E, an index that is meant to more accurately reflect the needs of people aged 62 and up. However, in the long run, the program would be less stressed because it wouldn’t have to pay for as many avoidable illnesses and situations.
The Impact of Economic Downturns on Social Security
Economic recessions lead to higher unemployment rates, resulting in decreased payroll tax revenues. This reduction in revenue puts additional pressure on the financial stability of Social Security, highlighting the need for robust economic policies to support the program during downturns.
Impact of Rising Healthcare Costs on Social Security
The rising cost of health care makes it harder for the Social Security Administration to run the disability and Medicare parts of the program well, which has an indirect effect on the program’s total financial health. As we’ve already said, this strain on the system comes from people putting off treatment for illnesses that can be easily prevented until the costs skyrocket and the people’s health is usually too bad to fix, which costs more in the long run.
Legislative Inaction
Lawmakers’ hesitancy to enact necessary reforms, whether through raising taxes, reducing benefits, or modifying eligibility criteria, threatens the long-term sustainability of Social Security. Proactive legislative measures are needed to address these challenges and secure the program’s future.
Technological and Administrative Challenges
The SSA has to keep changing to keep up with new technology and changing business needs. Serving a growing number of beneficiaries efficiently, keeping track of claims, and making sure payments are made correctly are all important parts of running the program well.