Millions of seniors today rely on Social Security to cover their living expenses once their careers come to an end. And chances are, you’ll eventually be financially dependent on those benefits once you retire.
But Social Security faces some of the financial challenges that put current and future beneficiaries at risk of taking less money out of the program. See, Social Security’s primary source of income is payroll taxes – which we all complain about. But Social Security expects that source of income to shrink in the coming years.
The reason? Baby boomers are likely to retire in the near term, after which they will not only stop paying for Social Security, but also start claiming benefits, leaving the program with a deficit on its hands.
Fortunately, Social Security has trust funds that it can use to keep track of planned benefits, even if revenues fall. But once those trust funds run out, there will be cuts in distributions.
That said, the Social Security Trustees just released a report moving the depletion date of the program’s trust funds. That, in turn, buys Social Security a little more time before benefits are on the table. But while that’s obviously good news to some extent, it doesn’t mean current and future beneficiaries need not worry.
The clock is ticking
Last year, the Social Security Trustees predicted that the program’s trust funds would be exhausted by 2034. Now the Trustees say this won’t happen until 2035. least based on current estimates.
In addition, once the program’s trust funds run out of money, Social Security is expected to be able to pay out 80% of the planned benefits. Earlier estimates called for slightly larger cuts.
On the one hand, this is positive news, because it means beneficiaries can get a one-year deferment of payment for Social Security cuts. On the other hand, it’s still hugely problematic because the reality is that many seniors get most or all of their income from Social Security, and any kind of benefit cut could be catastrophic.
In addition, many employees do not have retirement savings. For some, it’s a matter of not earning enough to cover living expenses, while still having money left over. And it is these people who, like many current seniors, cannot afford benefits.
Will the legislator intervene in time?
Lawmakers are well aware of the financial crisis that could arise if Social Security cuts are made. And for years they have been throwing different solutions to tackle the problem.
One such solution is raising the wage ceiling for social security purposes. Currently, earnings are subject to Social Security taxes only up to a certain limit that changes annually. Raising that threshold to tax more income could pump additional income into the program.
Raising the full retirement age is another solution some lawmakers are interested in. That’s when seniors have the right to collect their benefits in full. Currently, the full retirement age is 67 for anyone born in 1960 or later, but lowering that age to 68 or 69 could also help avoid benefits.
Ultimately, though, each of these solutions comes with downsides, so lawmakers will really have to work together to devise a plan to avoid Social Security cutting benefits. Fortunately, they now have an extra year to be creative. Ultimately, though, a widespread cut in benefits is something current and future retirees will still have to brace for.
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