As hard-working professionals trying to keep up with our busy professional and family life, it’s kind of infuriating to hear that social security money may not be there when we retire. “You are telling me that I have to keep paying taxes into a system that won’t pay me a dime back?” How is that fair?
Although it’s true that the current social security system is set to run out of money in the near future, there are methods that will likely be implemented to keep it going. There are many proposed actions that the Social Security Administration can take, but will likely fall back to four that seem to be the easiest and most practical.
1. The Social Security Administration (SSA) could cut benefits by the year 2034.
Right now the year 2034 is pegged to be the year that the SSA will no longer have money in the social security system. However, before that happens they can cut the amount of benefit that individuals will receive by making a small adjustment in the calculation.
The SSA has enough funds from payroll taxes to cover 76% of the social security benefits after 2034. This means they could pay 100% of social security funds if they reduced the amount of benefit received by individuals by roughly 25%.
Simple, but displeasing math may be the option the SSA will have to take moving forward. But hey, at least we get something?
2. Full Retirement Age 85
I’m kidding, but another option is to extend full retirement age (FRA) to something beyond the current 67 years old (For those turning age 62 in 2023). Although you can claim social security benefits as early as age 62, you are penalized by taking benefits before what the SSA deems to be FRA.
By extending out FRA and penalizing or reducing benefits before that age, the SSA can keep the bucket of social security funds filled longer. For us hard-working employed individuals, this may seem like a very daunting idea to keep grinding into our 70’s.
This is where projecting out different scenarios with a CERTIFIED FINANCIAL PLANNER™ goes a long way. You will want to understand how much you are giving up, financially speaking, for those extra couple of years, and vice versa. This is an important decision and one I don’t take lightly with my clients.
3. Income-Based Benefits Testing
A third way to help keep the social security funds bucket full is to base social security benefits on your gross or adjusted gross income. The SSA would set income limitations that will determine how much, if at all, social security benefit will go to us.
The idea here is to reduce or eliminate social security benefit to those who make too much money and shift those benefits to those with lower income who need the additional benefit more in order to pay bills and feed families.
This would be the least popular of the three options, but nevertheless one that has been proposed many times before. The fact that we have yet to see this come to fruition might be a sign that it may never get passed.
4. Some Combination of All of the Above.
What is most likely is some combination of all the methods listed here. The SSA may include income limitations. The SSA may reduce benefits. And the SSA may extend full retirement age.
By using a combination of techniques the SSA can reduce the impact that any one category will make on individuals. This seems to be the most fair to all concerned, even if it doesn’t seem like a desirable end result.
It is true that social security benefits will run out for us hard-working, social security tax paying individuals. However, there are slight changes the social security administration can make that will allow bucket to stay full.
It may not be everything you expected. But I would rather take something over nothing, wouldn’t you?
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