"Social Security is not going bankrupt," said Mary Beth Franklin a certified financial planner and contributing editor at Investment News. "There are long-term financing problems that we can deal with," she told a Bipartisan Policy Center (BPC) webinar called Social Security: Myths vs. Facts.
Working Americans pay 6.2% of their income, up to $142,800, to fund Social Security. Their employers match it. For the last 40 years, the program has intentionally collected more than it needed depositing the excess in trust funds to help fund the retirement of millions of Baby Boomers.
"Over the next few years, those trust funds are expected to run dry, that excess reserve, around 2034" Franklin said. "At that point, there would still be enough of ongoing payroll taxes to pay about 75%, 80% of promised benefits."
The Social Security Administration (SSA) said changing demographics are part of the problem. "In 1940, the life expectancy of a 65-year-old was almost 14 years; today it is just over 20 years. By 2035, the number of Americans 65 and older will increase from approximately 56 million today to over 78 million."
And, as the U.S. population ages the number of working Americans supporting retired Americans will decrease. "There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary," according to the SSA.
Jason Fichtner, the Chief Economist at the BPC and a former Social Security deputy commissioner said, "No one wants to live with a 20% or 25% haircut in their Social Security benefits."
Fichtner said Social Security is the primary source of income for a majority of senior citizens. "It's really important that we think about this not just as a Social Security issue but a retirement security issue."
He warns benefits will have to be reduced, "if Congress doesn't fix it and we have to rely solely on the payroll tax revenue coming in."
Franklin said Congress can fix the problem now as it did 40 years ago. "If we look back to the last time Congress made major changes, in 1983, they did a combination of things. They gradually increased the full retirement age from what was then 65 and will eventually become 67. There's talk that perhaps we should do that even further to 69 or 70 but don't panic. We're talking for today's 2 year olds. They'll get used to it."
She and Fichtner said Congress could have prevented the pending trust fund shortfall had it raised or eliminated the $142,800 payroll tax income cap when Social Security actuaries first sounded alarm bells. "If we had done that 10 years ago, that would have put Social Security back on 75 years solvency," Fichtner said.
Doing that now, according to Fichtner, would help but fall short. "This is the cost of delay. Imagine if we wait another 10 years to the point of trust fund depletion before Congress decides to act, that delta is going to grow larger." Fichtner predicts the longer Congress waits the more likely benefits will be cut or taxes will have to be raised.
Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps