Washington Saved Social Security From Insolvency in 1983. Will the Same Strategies Work Again?

If you’re on Social Security, it’s easy to feel like the program has never been in worse shape than it is today. Average benefits might be at record highs, but checks are losing buying power every year, and we’re only six ways away from a potential 22% benefit cut.

This isn’t the first time Social Security has been in a tight spot, though. It faced insolvency once before, and Washington saved it by passing reforms in 1983. While there is no planned fix for the program’s current insolvency crisis, it’s possible that Congress may fall back on some of the same strategies it used last time.

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How Washington saved Social Security in 1983

The Social Security Amendments of 1983 made several important changes to the program. Some increased benefits for certain workers, while others were designed to keep the program solvent for generations to come.

In the latter category, the biggest changes were raising the payroll tax rate, increasing the full retirement age (FRA), and instituting Social Security benefit taxes on seniors. The payroll tax increase meant workers had more money withheld from their paychecks, and the higher FRA meant they paid a steeper penalty for applying for Social Security early than their older counterparts. But the introduction of benefit taxes meant seniors also shared in the burden.

These plans were supposed to help the program pay out all scheduled benefits for at least the next 75 years, though that didn’t work out as expected. Population and wage growth estimates made at the time of the 1983 reforms turned out to be way off, and that’s how we wound up where we are right now.

Expect to see some of the same changes this time around

We don’t yet know how Washington will fix Social Security, but it’s already throwing out ideas that look surprisingly familiar. Raising the payroll tax rate is one possibility that’s been talked about. This is currently 12.4%, split evenly between employees and employers. There have also been discussions about raising the payroll tax ceiling (currently $184,500) to force wealthy Americans to pay more into the program.

Some Congresspeople have floated the idea of raising the FRA, currently 67 for those born in 1960 or later. This would act as an indirect benefit cut for younger workers by increasing the early claiming penalties they face and reducing the delayed retirement credits they get for delaying benefits beyond their FRA.

It’s also possible that Washington uses a combination of strategies to keep Social Security going, including some of the ones listed above. We may have to wait a few years to find out. But once it has settled on a plan, you’ll probably need to make some changes to your retirement strategy.