Millions of seniors depend on Social Security to cover the bulk of their living costs in retirement. And many beneficiaries have struggled to keep up with their bills through the years, largely due to stingy cost-of-living adjustments that have made it difficult to keep pace with inflation.
Meanwhile, seniors on Social Security just got some really bad news about the program. The Social Security Trustees recently released a projection calling for the program’s trust funds to be depleted as early as 2034. That’s a year earlier than they called for last year and means that Social Security is closer than ever to cutting benefits once its trust funds are depleted.
But will lawmakers actually allow that to happen? Or will they find a way to get Social Security the revenue it needs to prevent benefit cuts?
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It’s up in the air right now
According to the Social Security Trustees’ latest projection, benefits will need to be reduced by 20% once the program no longer has money in its trust funds. Given that many seniors on Social Security are barely scraping by right now, a 20% pay cut sounds downright catastrophic — so catastrophic that lawmakers might be willing to go to great lengths to prevent that from happening.
The question, however, is how to solve Social Security’s funding issues. There are a number of potential solutions that have been introduced, but each one seems far from ideal for obvious reasons.
Lawmakers could choose to raise Social Security taxes so that workers pay into the program at a higher rate than they do now. But that puts the burden of preventing benefit cuts on members of the workforce today who may be struggling to keep up with their own bills.
Lawmakers could also choose to force higher earners alone to pay more Social Security tax. But the program is set up to reward earners with benefits that are somewhat proportionate to what they pay in. So to keep things equitable, Social Security would need to raise its maximum monthly benefit if it were to start taxing higher wages. And that may not serve the purpose of pumping cash into the program, which is sorely needed.
Finally, lawmakers could opt to push back the full retirement age, which is when workers can collect their Social Security benefits without being penalized for an early claim. Right now, the full retirement age is 67 for those born in 1960 or later, but the idea of pushing it to 68 or beyond has been floated around.
That might seem like a viable solution since it doesn’t require an increase in taxes. But it also effectively forces a lot of people to delay retirement.
All told, lawmakers have a pretty tough decision to make. But chances are, they will step up and prevent Social Security cuts from happening. Allowing benefits to be reduced could mean seeing millions of retirees plunge into poverty, and that opens up a whole other can of worms.
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