A recent study by Urban Institute researchers Richard Johnson and Karen Smith has highlighted the dire consequences of ignoring Social Security’s looming financial shortfall. If action is not taken, 3.8 million seniors could be plunged into poverty by 2045, with median promised benefits declining by $5,900 in 2022 dollars. Low-income seniors would bear the brunt of the impact, with the lowest-income 40% of households facing a nearly 20% reduction in median incomes after age 62. This would leave many older adults without the resources needed to cover essential living expenses, such as food and shelter.
The root cause of Social Security’s financial woes is a demographic time bomb, with too few workers contributing payroll taxes to support the growing number of retirees, especially as Baby Boomers claim benefits for longer periods. Social Security’s actuaries predict the program’s old age trust fund will become insolvent by 2035, with only 83% of promised benefits being paid at that time and only 73% in the long run. While there are several potential solutions to address the funding gap, such as raising taxes, cutting benefits, or a combination of both, political will is lacking to enact these changes.
Proposals to reform Social Security include raising the payroll tax cap, expanding the tax base beyond wages to include investment income, raising the retirement age, or restructuring benefits to provide additional support for lower-wage workers while reducing benefits for higher-income seniors. However, politicians have been hesitant to address the issue, with former President Donald Trump and the Republican Party platform promising to protect Social Security without any cuts or changes. President Joe Biden proposed modest changes during his campaign, but has not pursued them while in office, leaving Vice President Kamala Harris as the potential successor without a clear plan for addressing Social Security’s financial challenges.
Despite the clear warning signs from analysts and policymakers, many politicians continue to hope that “something will turn up” regarding Social Security’s financial problems. However, the consequences of inaction would be catastrophic for millions of low-income older adults who rely on the program for basic necessities. It is crucial for policymakers to prioritize addressing Social Security’s financial shortfall to ensure the program’s long-term sustainability and prevent widespread poverty among seniors in the future.
