Millions of Americans rely on Social Security as a cornerstone of their retirement income, but by 2033, their benefits could be at risk because the program may become insolvent. Without Congressional action, retirees could see their Social Security checks cut by about 20%. To avoid this situation, lawmakers have introduced a bipartisan plan to reform Social Security. If implemented, this move will ensure that retirees receive 100% of their promised benefits.
Why Social Security Is in Trouble
Since its creation in 1953, Social Security has served Americans diligently. The trust fund is funded by payroll taxes, which enable it to pay retirement benefits to tens of millions of seniors. However, due to longer lifespans and lower birth rates, there has been a funding gap as the number of workers paying into the system decreases while the number of beneficiaries continues to rise.
The shortfall is massive. In today’s dollars, Social Security is projected to owe $25 trillion more than it will take in over the next 75 years.
How the Bipartisan Plan Works
To solve this funding gap, Senators Cassidy and Kaine have proposed a bipartisan rescue plan that prevents benefit cuts while reducing the nation’s long-term debt.
Here are the key components of the plan:
a) A New Investment Plan
Unlike the current trust fund, which is invested in traditional government bonds, the new fund would be invested in stocks, bonds, and other diversified assets to achieve higher returns.
b) Initial Investment
The fund would begin with an initial investment of 1.5 trillion, funded by the U.S. Treasury, and would be allowed 75 years to grow.
c) Payback Structure
Over time, the trust fund would repay the Treasury and supplement payroll taxes to support full Social Security benefits.
d) No Benefit Cuts
This new plan ensures that there are no benefit cuts for both current and near-future retirees. Seniors over 80 living below 200% of the federal poverty line would receive slightly more benefits.
“Some people will get a little bit more,” added Cassidy. “For example, we have something that if you’re over 80 and you’re 200% less than the federal poverty level, we give you a little extra. We have work incentives in there.”
e) Oversight and Safeguards
To ensure responsible management of the funds, strict fiduciary rules similar to the Thrift Savings Plan would be followed and would be subject to annual public audits.
Why It’s Different and Why It Could Work
The program is different because its funding strategy moves beyond low-yield government bonds and taps into diversified investments that offer higher long-term returns.
The plan is expected to work because of a historical precedent: the National Railroad Retirement Investment Trust that was created in 2001. The trust was successful, and it used a similar approach to support retirement payouts for railroad workers. That fund has remained financially stable and met all its obligations without fail.
The proposed plan also mirrors the investment strategies used by most pension systems in the U.S and beyond, which aim at balancing safety and growth through diversified investments.
A Nation Ready for Action
According to surveys, younger generations are increasingly worried about whether Social Security will be there when they retire. Offer 80% of Gen X say that they are not certain that they will receive their hard-earned benefits.
Senator Cassidy acknowledges the challenge that history would say bet against it. He also believes that their proposal with Senator Kaine has a way that balances politics, fixes the shortfall, and protects every benefit Americans have been promised.
Next Steps in Securing Social Security
If Congress fails to act, retirees will receive slashed Social Security in 2033. The projected reduction would lower their benefits to 80% and this could cause financial strain on most seniors who are already living on tight budgets.
If the bipartisan plan becomes law, the benefit cuts would be avoided. As Cassidy puts it, “Under our plan, everybody gets all the benefits they’ve been promised. Period. End of story.”