Social security disability insurance supports Americans with disabilities and is indeed a major lifeline for many people who cannot work. Since the benefits are granted based on a detailed medical records review, deserving applicants receive the benefits. Social security benefits play an important role in keeping millions of people, especially the elderly, out of poverty. The Motley Fool carried a post on the Social Security Program’s future and the challenges it faces. According to this article, the program is facing tough times, going by the Social Security Board of Trustees’ report released this June. The report says that starting this year and continuing with each subsequent year, the program will spend more than it collects in revenue. By the year 2034, the $2.89 trillion that Social Security holds in its reserves may be completely spent.
That doesn’t mean that retirement benefits will be written off because there is no excess cash for social security. The program still has two ways of generating recurring revenue even if interest income on its asset reserves may not be available any more. These are:
- The 12.4% payroll tax on earned income up to $128,400 (in 2018)
- Taxation of benefits for beneficiaries earning more than select income thresholds
These two recurring revenue sources generated 91.5% of the $996.6 billion collected by Social Security in 2017. So, Social Security is not going to run out of cash and retirees will receive benefits, provided they qualify for one.
The current payout schedule may not be workable, and the Trustees say that an across-the-board cut to benefits of up to 21% may be required to maintain payouts through 2092, without having to impose any further cuts. This prospect is indeed disturbing for at least 3 out of 5 seniors who rely on their monthly paycheck for at least half of their income.
The major reasons for Social Security’s financial problems are:
- Increased longevity of Americans: Compared to 1960, the average American is living approximately nine years longer now. This is largely on account of improved medical care and pharmaceuticals, and improved healthcare knowledge.
- Increasing income inequality: Wealthy Americans do not have any financial constraints as regards preventative care, pharmaceuticals, and medical treatment. At the same time, lower-income people may not be able to afford all that, resulting in a gap in the life expectancies between these 2 income groups. The rich live longer than the poor, and as a result collect an excessively large amount of Social Security income.
Some believe that immigrant workers may hurt Social Security. Immigration may be legal or illegal. Legal immigration does help Social Security in the long run. This is because legal immigrants to the United States are mostly young. Even if this group earns the required 40 lifetime work credits needed for a retired worker benefit during their own retirement, they may work for 2, 3, or 4 decades and contribute via payroll tax just as other working Americans. Payroll tax revenue from legal immigrants helps support an increasing number of eligible retirees.
Undocumented workers don’t qualify for a Social Security number and so are ineligible for a retired worker benefit as well as disability benefit and survivor’s insurance protection. Migrants will not qualify for Old-Age / Survivor’s Insurance Trust/Disability Insurance Trust if they are not trying legally for a citizenship and earning lifetime credits. The AARP (American Association of Retired Persons) says that around $12 billion was collected in 2010 as payroll tax revenue from either undocumented immigrant workers or their employers. Unless these workers become legal citizens of the U.S and earn the required 40 work credits for a retirement benefit, they have no chance of getting this money back.