Newsbreak: Social Security Faces $20.4 Trillion Shortfall – Retirees May Face 23% Benefit Cut by 2034

Social Security, a vital financial lifeline for many retirees, is in trouble, and retirees may end up paying the price. The program faces an estimated $20.4 trillion funding shortfall through 2096, according to the 2022 Social Security Board of Trustees Report. The report predicts a potential 23% benefit cut for retired workers by 2034 if lawmakers fail to amend and fix the program’s issues.

Based on a report by The Motley Fool on March 17, 2023, 90% of Social Security’s funding comes from the payroll tax on earned income, with the remainder coming from taxing benefits on people and couples earning more than certain thresholds. Nonetheless, a number of issues have contributed to its difficulties. The ongoing retirement of baby boomers, increasing longevity, demographic shifts, growing income inequality, historically low interest rates, and lawmakers’ actions are all to blame.

The program was not designed to pay retired workers for multiple decades, and demographic shifts like fewer legal immigrants entering the US and a growing income inequality problem affect Social Security’s funding. Additionally, as reported by Investopedia on February 10, 2023, the Federal Reserve’s historically low lending rates hurt the program’s interest income-earning capacity. The program’s asset reserves are required by law to be invested in special-issue Treasury bonds. Congress must amend the program to prevent a significant benefit cut for retirees in the future.