What Happens To Your Social Security Disability Benefits When Government Funding Runs Low?

30 December 2014
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As more Baby Boomers enter their retirement years, the Social Security trust fund has begun to run low. And some economists have predicted that payments made from Social Security (including Social Security Disability payments) may be reduced as early as 2016, with an up to 20 percent cut in benefits. What will happen to your Social Security Disability payments when the trust fund runs low? Read on to learn more about how these economic factors can affect your monthly income, as well as steps you can take to help lessen the financial impact on your lifestyle.

How are Social Security Disability (SSD) payments funded?

All U.S. employees are required to pay 15.3 percent of their total income to the Federal Insurance Contribution Act tax. A total of 12.4 percent of this contribution goes to fund Social Security, while the remaining 2.9 percent goes to Medicare. 

The 12.4 percent of FICA taxes designated for Social Security are kept within several government trust funds. One of these funds covers Social Security retirement payments to retirees, as well as death benefits to widows or widowers, while the other pays out SSD and Supplemental Security Income (SSI) payments to individuals who are disabled and can't work.

When employment and salaries are high, these trust funds are flush and payments can increase with the cost of living. But when the amount of taxes paid into the funds are dwarfed by the financial obligations to beneficiaries, these funds run at a deficit, and eventually go bankrupt. Current estimates indicate that the Social Security retirement trust fund will begin to run low in 2033, with approximately a 25 percent reduction in benefits if Congressional action is not taken. Unfortunately, these same estimates put the benefits cut for SSD and SSI recipients around 2016.

What should you do to preserve your benefits?

One proposed option is to transfer some of the funds from the Social Security retirement fund to the SSD/SSI fund until a more long-range solution can be reached. Another option is to increase FICA taxes or to eliminate the earnings cap on taxation so that more revenue is collected. And a final option is to carefully comb through the rolls of current recipients and ensure that none are fraudulently receiving benefits.

Any of these options can be implemented by the federal government if there exists enough popular support for the option. The best way to voice your vote is to contact your local congressperson and indicate which option you support and how a cut in benefits could affect you and your family. Let your friends and family members know how important this is to you and encourage them to contact their congresspeople as well.

Another option is to begin reducing fixed expenses now, so that you can better weather a potential financial setback. Although a 20 percent cut in income can hurt for even the most expansive budgets, by keeping your home mortgage, transportation costs (including any car payments), utilities, and other necessary expenses to less than half your take-home income, you can ensure that these types of blows won't knock you down. This gives you plenty of wiggle room in more variable budgets, such as groceries, entertainment, and clothing. You might also want to consult with a Social Security attorney to determine whether there are any freelancing or work from home jobs you can perform that will still leave you eligible for disability payments. 

A final option is to have a peek at this site and consult an attorney who is experienced in handling Social Security Disability cases. If a cut in benefits would cause a significant hardship, this attorney can help you gather all appropriate documentation to ensure that you are able to quickly appeal this cut and regain your original benefits.