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 end up depending on those benefits financially once you retire.
But Social Security is facing its share of financial challenges that put current and future beneficiaries at risk of getting less money out of the program. See, Social Security’s primary revenue source is payroll taxes — the ones we all gripe about. But in the coming years, Social Security expects that revenue source to shrink.
The reason? Baby boomers are likely to start retiring in short order, at which point they’ll not only stop paying into Social Security, but they’ll also start claiming benefits, leaving the program with a shortfall on its hands.
Now thankfully, Social Security has trust funds it can tap to keep up with scheduled benefits even once its revenue declines. But once those trust funds run out, benefit cuts will be on the table.
That said, the Social Security Trustees just put out a report moving the program’s trust funds’ depletion date back. That, in turn, buys Social Security a little more time before benefit cuts come to the table. But while that’s clearly good news to some degree, it doesn’t mean current and future beneficiaries don’t have to worry.
The clock is ticking
Last year, the Social Security Trustees projected that the program’s trust funds would be depleted by 2034. Now, the Trustees are saying that won’t happen until 2035. That means benefit cuts should be off the table for at least one more year, at least based on current estimates.
Furthermore, once the program’s trust funds run out of money, Social Security is expected to be in a position to pay out 80% of scheduled benefits. Previous estimates called for slightly larger cuts.
Now on the one hand, this is positive news, because it means beneficiaries could get a one-year reprieve on 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 type of benefit cut could be catastrophic.
Furthermore, many workers do not have retirement savings. For some, it’s a matter of not earning enough to cover living costs while having money left over. And it’s these people who, like plenty of current seniors, cannot afford benefit cuts.
Will lawmakers intervene in time?
Lawmakers are keenly aware of the financial crisis that could ensue if Social Security benefit cuts are implemented. And for years, they’ve been tossing around different solutions to address the problem at hand.
One such solution is to raise the wage cap for Social Security purposes. Right now, earnings only up to a certain limit that changes annually are subject to Social Security taxes. Raising that threshold to tax more earnings could pump added revenue into the program.
Raising full retirement age is another solution some lawmakers are interested in. That’s when seniors are entitled to collect their benefits in full. Currently, full retirement age is 67 for anyone born in 1960 or later, but if that age is moved back to 68 or 69, that, too, could help prevent benefit cuts.
But ultimately, each of these solutions has its drawbacks, too, and so lawmakers will really need to come together to work out a plan to prevent Social Security from having to slash benefits. Thankfully, they now have an extra year to get creative. But ultimately, a widespread reduction in benefits is something current and future retirees will still have to brace for.
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