The Social Security Trustees Report has three sets of estimates for how much money Social Security will have in the future. These numbers are based on different assumptions about future birth rates, economic growth, inflation, wage growth, interest rates, and other things.
The middle, low-cost, and high-cost situations are their names. Many big guesses about the future of Social Security have been based on the intermediate estimates. For example, the idea that the trust funds will run out of money by 2035 is based on these figures.
The two scenarios that beneficiaries can face regarding their Social Security benefits
The following claims are made about the middle-ground scenarios: There will be 1.63% annual economic growth, 2.4% annual inflation, 3.56% annual wage growth, 4.5% unemployment, and an average interest rate of 2.3% on Treasury securities held by Social Security.
All of these scenarios are based on the idea that the total fertility rate (number of children born to each woman) will stay at 1.9 in 2040 and beyond. There is no promise, though, that these are the real numbers.
That’s why it’s so important to know what the other two scenarios mean. These figures are just the middle point, but it would be good for Social Security if they changed in certain ways. Just to name a few:
- Higher fertility rates indicate that there will be more workers contributing to Social Security.
- Lower unemployment rates also suggest that a larger proportion of the available workforce will earn Social Security-taxable income.
- Higher Treasury security interest rates result in greater interest income pouring into the program from Social Security reserves.
- Faster wage growth would result in more total income due to the Social Security tax.
On the other hand, the low-cost scenario makes more aggressive, albeit quite reasonable, assumptions regarding these and other matters. For instance, it presumes:
- A fertility rate projection of around 2.1 children per woman.
- The average economic growth rate is 1.93%.
- The average inflation rate is 0%.
- The average wage increased by 79% (1.74% after inflation).
- 5% unemployment rate.
- The average interest rate for new Treasury securities is 8%.
- It also anticipates a higher rate of immigration into the United States (both legal permanent residents and non-legal permanent residents), which would result in more taxpayers.
That is, the high-cost estimate is based on a lower birth rate of 1.6 children, slow economic growth of 1.33 percent, yearly inflation of 1.88 percent, and average unemployment of 5.55 percent, all of which are likely to happen.
The Social Security trust funds are expected to run out of money in 2035, but if high costs are taken into account, that date could be pushed back to 2032. But in the low-cost case, the trust funds won’t run out until 2080, which is 45 years later than planned. They will then start to grow again a few years later.
This means that the low-cost situation is not possible and the system needs to be changed. However, the funds will run out of money eventually, even if big assumptions are made.
Lastly, if cutting benefits is the only way to keep Social Security running, users need to know how much they will be cut so they can plan how to make up the difference and keep their budgets in balance. Also, keep in mind that benefit cuts depend on a retiree’s age, length of service, and total career earnings.
A low-income, two-income couple retiring in 2033, as described by the Social Security trustees, would see a $10,000 drop in their payments, according to a report by the Committee for a Responsible Federal Budget that tries to figure out how much the drop could be.
Two people who make a lot of money would lose $21,800 in pay. Because of this, people who get Social Security benefits need to start looking for other ways to save money for the future and stay up to date on how the system might change and how that might affect their benefits.
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