When Will Social Security Run Out? Here Is the Truth About SSI

Social security is the most prominent social insurance program in the US, but is it really here to stay?

While the Social Security Administration (SSA) provided more than $1 trillion USD in benefits in 2018, the funds will not last forever, right? 

Well…maybe?

So, when will Social Security run out? Let’s attempt to clear the air a little and talk about the future of SSI benefits as they stand today.

Social Security Explained

Social security hails back to the 1930s. Back then, President Franklin D. Roosevelt launched a social insurance program to support retired workers with a continuing income. The original aim of social security was to help workers fund their benefits through their income taxes.

In 1939, social security extended to include dependents and survivors of people who originally earned social security benefits. Coincidentally, this enabled blue-collar workers to also do some estate planning and take care of their loved ones.

Social Security Today

According to the Social Security Administration (SSA), there is a cash deficit in the social security insurance program. In order to cover that deficit and keep paying out benefits to current retirees, the SSA has been withdrawing money from trust funds to cover the deficit.

However, this is probably not a sustainable condition. Experts estimate that the trust funds will be exhausted by 2037 or earlier without some sort of structural change. Some analysts expect the funds to run out as early as 2029. Until then, current retirees will continue to receive their full social security benefits, but the future is currently, uncertain.

The Future of Social Security

So, what will happen after the trust funds run out? After that time, the SSA may have to either increase the payroll tax rate or reduce the social security benefits.

Initially, the current taxation could be enough to cover ~76% of all expected benefits due. This means that social security benefits would be less while the income tax would remain the same or even increase. To amend this, Congress must adjust the funding of SSA.

What Does This Mean For People Who Are Currently in the Work Force?

If you are currently employed but will hit retirement age close to 2037, you need to plan your future carefully. While social security will not go away, it could represent less actual income compared to what it is today.

Right now, social security cannot keep up with the spending needs of seniors, and this trend will only grow as time goes by. That is why it is a good plan not to rely solely on social security.

When Will Social Security Run Out? Now You Know!

Now that you know the future of social security is unclear, it is time to take steps to get ahead of that uncertain future.  Perhaps the biggest step you can take is starting to establish a great estate plan. 

Here at Lilac City Law, we have the experience and the legal know-how to help you plan your estate with efficiency and compassion. We work with great financial planners too!

Contact us today and we will gladly help you craft an estate plan that will save your loved ones from an expensive and time-consuming court process during their time of grief.

  • This field is for validation purposes and should be left unchanged.

What Are the New Tax Law Exemptions for Estate Planning?

Another tax season is here, and Americans have more questions than ever. The reason is that the United States government drastically overhauled its tax code in 2017.

In December 2017, the U.S. Congress passed the Tax Cuts and Jobs Act (TCJA). President Trump signed the TCJA, and its implementation started with the 2018 tax season.

The tax overhaul affected many areas, including corporate rates and personal income taxes. It also had a significant impact on the tax policy for estate planning.

Read on to learn about the new tax law exemptions in regards to estate planning. Explore changes due to the TCJA and find out how it may affect you.

Estate Tax before the TCJA

First, it is important to understand how the estate tax worked before the passage of the TCJA. In the past, transferrable property up to $5.6 million was exempt from estate and gift taxes.

The $5.6 million threshold was set in 2011 and adjusted higher for inflation each subsequent year. For married couples, the threshold increased to roughly $11.2 million.

The term portability also factors into estate planning for married couples. This means that if a deceased spouse did not use the full exemption amount, the remainder can be transported to the surviving spouse.

Estate Tax under the TCJA

The most impactful change is that the TCJA doubled the estate and gift tax threshold. In 2011, the base exemption amount was doubled from $5 million to $10 million. Again, this value is adjusted upward for annual inflation and sits at $11.18 million in 2018.

The threshold also doubled for married couples. Adjusted for inflation, the new threshold is approximately $22.4 million.

After the changes, the bottom line is that fewer Americans are subject to estate taxes. Tax experts estimate that 40 percent fewer Americans will pay this tax each year.

Impact on Professional Estate Planners

Since the tax threshold doubled, some people are mistakenly putting off estate planning. They think that since the exemption is so much larger estate planning is no longer necessary.

For starters, this thought process is misguided as the new thresholds have an expiration date. According to the TCJA, the elevated levels will continue until 2025 and then revert back to prior amounts. The expiration date is less than a decade away, and estate planning is a long-term strategy.

Furthermore, each state has its own unique estate policy (see a proposed bill in California to drastically increase the in-state estate tax). The TCJA only affects federal law and does not affect rules governing the residents of Idaho and Washington State.

With the new thresholds, your estate plan may need to be adjusted. This includes updating old documents that are no longer optimal due to the TCJA changes.

A Recap of the New Tax Law Exemptions

The TCJA is providing estates with temporary benefits through 2025. However, it is still imperative to develop an estate plan with the help of professionals.

Otherwise, you run the risk of losing out on provisions intended to benefit you at the state or federal level. If you want to learn more about the new tax law exemptions, contact us to schedule an appointment today.

  • This field is for validation purposes and should be left unchanged.