Social Security recipients frequently rely on their benefits to make ends meet. Current beneficiaries, on the other hand, maybe in for a nasty awakening in approximately a decade.
As baby boomers leave the workforce in droves, Social Security is likely to owe more money in benefits than it collects in revenue in the coming years. What is the explanation for this?
Payroll tax dollars are the program’s principal source of funding. That financing source will be reduced when the labor force diminishes, which is projected as baby boomers retire.
In the face of diminishing revenue, Social Security has trust funds it can draw for a number of years to keep up with scheduled benefits. When the trust funds run out, though, benefit cuts will be a serious prospect for seniors to deal with.
Worse, such benefit cuts could come sooner rather than later. The program’s Trustees recently forecasted that the trust funds will run out of money in just over a decade.
Different alternatives have been proposed by lawmakers to alleviate Social Security’s imminent financial crisis. However, one approach may not be acceptable to future retirees.
Is it possible that the full retirement age will rise?
Seniors can apply for Social Security starting at the age of 62. However, full benefits do not begin until you reach full retirement age or FRA. Filing before FRA, on the other hand, results in a lower retirement benefit.
FRA isn’t for everyone. Rather, it is determined by the year of birth:
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 or later||67|
Social Security Administration is the source of the data.
Raising the FRA for future recipients is one suggestion made by some legislators. Changing the FRA from 67 to 68, for example, could encourage more people to work for an additional year, resulting in higher payroll tax revenue for Social Security.
As a result, benefit cuts may be avoided, or at least postponed.
Given the fact that life expectancies have risen over time, this notion isn’t altogether absurd. However, it is a notion that is unlikely to be well received.
For those born in 1960 or after, FRA rises dramatically with age before plateauing around age 67. Workers, on the other hand, maybe less enthusiastic about having to postpone retirement by a year.
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In fact, up until the age of 70, seniors who delay their claims past FRA are rewarded with an 8% annual increase in their payments. However, only a small minority of recipients take advantage of deferring their payments until they reach the age of 70.
In reality, despite the drop in benefits, claiming benefits at the age of 62 has long been the most popular option. If the FRA is changed, seniors may choose to retire at the age of 67 anyhow, leaving them with a lesser monthly payout for the rest of their lives.
One of several options
Raising the FRA is only one of several proposals that politicians have floated in order to avoid Social Security cuts. Other ideas include raising or abolishing the wage cap that applies to payroll taxes on earnings,
as well as means-testing seniors to ensure that those who are financially well-off receive a smaller benefit.
However, for every remedy presented, another equally legitimate issue arises. As a result, preventing a scenario in which Social Security benefits are slashed across the board will need some sneaky maneuvering on the side of Congress.
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