Is Social Security Going Bankrupt? The Trustees Say No
The annual Social Security trustees report looks at the status of the Social Security funding and makes projections about how the program is likely to perform in the years to come. At this point, Social Security is running under a deficit with funds going out faster than they're coming in. However, the trustees say that Social Security won't go entirely bankrupt, although they admit some changes are in order to keep the program paying full benefits going forward.
Social Security's primary source of funding is payroll taxes. If you're an employee, you'll see these taxes listed as withdrawals on every paycheck. This has worked really well for a long time thanks to the baby boomers; because there are so many baby boomers compared to other generations, while they were working, they paid far more in payroll taxes than Social Security was spending on benefits. The government put the extra money into two trust funds, one for retirement and survivor's benefits and the other for disability benefits.
Unfortunately, now that the baby boomers are entering retirement in large numbers, the bulge in the population is going in the wrong direction for Social Security's financial well-being. In other words, there are now far fewer workers to support each retiree than in the past. In 2010, the Social Security Administration began drawing interest from the trust funds to make up the gap. By 2021, they'll need to start withdrawing trust fund principal as well, and by 2034, the trust funds are predicted to run out of money.
Source: Fool.com
