Look for a fix - but with fewer benefits and higher taxes.
Wondering what it will be like to retire in five years? If you're the typical hard-working middle-class to upper-middle-class American, you'll probaby be eligible for about $25,000 a year in Social Security benefits - not much, but enough to provide a financial cushion. You'll likely also receive Medicare, with the choice of the government-run plan or enrolling with a private insurance company.
If you are retiring in 35 years, forget all that. According to the latest predictions by the Social Security Trustees, if the government does not take action, the Social Security trust fund will be exhausted in 2042. (That doesn't mean Social Security would be gone forever. Even if no changes are made, the program would still collect enough payroll taxes that year to pay 75 percent of scheduled benefits.)
Medicare will be deeper in the red. The trust fund that covers hospital insurance will be long gone (in 2019, according to the latest projections), so the government will have to devote a larger and larger share of the budget to pay for it.
Before you panic, know that events won't unfold like this. Social Security and Medicare are both popular programs, which means they will both be around in 35 years. Sometime between five and 35 years from now, Congress will pass a Social Security fix. (Given that the last major fix passed in 1983, just months before the trust fund was to be exhausted, I suspect it might be closer to 35 years from now.)
As you might expect, this fix will likely include benefit trims and revenue increases. Some of the revenue increases will likely be in the form of higher taxes on high earners - probably extending payroll taxes past the current cap of $97,500. But extra revenues from high earners will not be enough to pay for the benefit levels that Democrats want. Meanwhile, Republicans are unlikely to support higher payroll tax rates.
One plausible compromise: Any additional revenue would come in the form of mandatory, add-on contributions to individual accounts. For example, everyone would be required to invest an additional 3 percent of his or her pay in a limited set of diversified stock and bond funds that are automatically turned into an annuity at retirement.
That would be a profound change for the one-third to one-half of families who are saving too little and have no exposure to the risks and rewards of the stock market.