Seniors who get most of their income from Social Security are potentially in deep trouble. The reason? Social Security may be considering benefit cuts in just over 10 years. And if lawmakers don’t step in, many retirees could end up mired in poverty.
The good news is that there are different solutions that lawmakers have been discussing to help address Social Security’s remaining funding shortfall. But whether they actually manage to make one work is a different story.
Social Security needs help
In the next years, Social Security expects to owe more money in benefits than it collects in income. A major reason for this is that mass retirement baby boomers are expected to move on. As boomers leave the workforce, they will stop paying Social Security and start collecting their own benefits as well. That is a bad combination.
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Fortunately, Social Security has trust funds that you can tap into to keep up with scheduled benefits for a while. But recent projections point to those trust funds running out of money by 2035. At that point, benefit cuts it will be on the table unless lawmakers intervene.
Can lawmakers avoid benefit cuts?
Do lawmakers have the ability to prevent Social Security from being forced to cut benefits? Yes. Will they manage to act in time? That is questionable.
Although Social Security’s financial problems aren’t exactly news (the program’s trustees have been issuing warnings for years), lawmakers have been slow to act to address them. But also, while lawmakers have different proposals to work with that could prevent benefit cuts, they all have their share of drawbacks.
One solution to pump more money into Social Security is to raise the salary cap, which currently exempts earnings of more than $147,000 from Social Security taxes. Doubling that limit, or eliminating it altogether, could bring in a lot more payroll tax revenue for Social Security, but it’s a solution that’s unlikely to be popular with the wealthy. And as such, lawmakers may be hesitant to act on it.
Another option is to roll back Social Security full retirement age from 67 for those born in or after 1960 to a later age, say, 68 or 69. Doing so could save the program a lot of money. But once again, lawmakers fear the backlash that could come if workers feel compelled to delay retirement.
And then there is the idea of reducing benefits only among the rich. The logic is that millionaire retirees don’t need their Social Security benefits the same way seniors with no savings do, so cutting their benefits shouldn’t be a big deal. But Social Security has long prided itself on not being a welfare program, and this change could alter its role and perception unfavorably. That alone could push lawmakers to avoid this solution.
a difficult situation
In total there are are options to give Social Security the revenue boost it needs to avoid benefit cuts. But unfortunately, lawmakers are in a tough spot when it comes to taking action. That’s why current and future beneficiaries alike should prepare for Social Security cuts, despite the catastrophic impact it could have.
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