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A Preview of Future Demographic Conflict?

By July 9, 2020July 15th, 2020Insurance

One of the toughest challenges about the coronavirus pandemic has been balancing the protection of older Americans’ health against the younger, healthier population’s need to avoid a massive economic depression.

A similar demographic face-off may be looming over Social Security.

The 2020 Social Security Trustees Report shows what shaky financial ground the program is on: “The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034….At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay [just] 76 percent of scheduled benefits.”


There are basically only two ways to address this shortfall; either increase funding (i.e., taxes) enough to pay all the promised benefits, or cut the promised benefits.

Those tax hikes won’t fall on the older generation already receiving their Social Security benefits, but on the younger generations who are still working. It could involve, for instance, eliminating the current $137,700 salary cap on Social Security contributions, and/or raising the current 7.65% tax rate.

If those taxpayers resist, it could force a reduction in Social Security benefits. For instance, the full retirement age to receive benefits could be pushed back even further; the current 8% increase for deferring benefits could be reduced; or the cost-of-living adjustments (COLAs) could be made skimpier. It could also mean doing away with the current 50%/85% ceiling on taxing those benefits.

It will be a battle, in other words, over who bears the burden of these necessary adjustments. Will it be current workers who may have to work longer or pay more? Or, will current retirees be impacted by a less-generous COLA and/or full taxation of their benefit payments?

While the eventual outcome is unknown, this situation does point to the need for people to try to have more self-sufficiency in planning and saving for retirement to allow them greater control, so as not be as whipsawed by future changes in the rules.