Quick Read
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Social Security’s combined trust funds are expected to run dry by 2034, at which point the program may have to cut benefits.
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Potential solutions for preventing cuts include raising payroll taxes above 6.2% or increasing full retirement age to 68 or 69.
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Lawmakers need to act quickly to shore up Social Security’s finances.
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When working Americans retire, they expect Social Security to pay them monthly benefits for the rest of their lives. Those benefits won’t replace their paychecks in full, but they’re a crucial source of retirement income nonetheless.
The problem is that in the coming years, Social Security is anticipating a funding shortfall. And because of that, benefits are facing cuts.
That could deal current retirees a catastrophic financial blow. It could also upend the plans of working Americans who plan to retire eventually.
Social Security gets the bulk of its funding from payroll taxes. In the coming years, though, the U.S. workforce is expected to shrink as baby boomers retire in masses.
Social Security’s combined trust funds are expected to run dry by 2034. Once that happens, the program may only be able to pay 81% of benefits.
The good news is that there are potential solutions that could prevent Social Security cuts. The bad news is that every solution at hand seems to have undesirable consequences. Here are some of the ideas lawmakers are considering.
1. Lifting or raising the wage cap
Social Security has a wage cap each year that limits the amount of income it taxes. The current wage cap is $176,100, but in 2026, it’s increasing to $184,500.
Raising the wage cap, or eliminating it completely, could increase funding for Social Security. However, it also raises the question of what to do about the fact that there’s a maximum monthly benefit the program will pay that’s tied to the wage cap.
Social Security is not intended to be a welfare program. People earn benefits by paying into the system.
If Social Security were to raise or get rid of the wage cap without increasing its maximum monthly benefit, it could change the very nature of the program. However, if benefits are allowed to increase after raising or getting rid of the wage cap, it may not result in much of a net gain for Social Security.
2. Raising the payroll tax rate
Currently, workers and employers are each subject to a 6.2% Social Security tax rate. Lawmakers could raise that tax rate to increase the program’s funding. Even a modest bump to 6.5% or 7% could result in a lot of revenue for Social Security.
The downside, of course, is that workers and employers don’t want to bear the expense of higher taxes. An increase could truly burden Americans who are already living paycheck to paycheck.
3. Increasing Social Security’s full retirement age
Full retirement age (FRA) is when people can claim their Social Security benefits without a reduction. FRA is 67 for anyone born in 1960 or later.
Some lawmakers are looking to push FRA back to 68 or even 69 for younger workers. That could produce some nice savings for Social Security, but the downside is that it could force many people to work longer than they want to.
4. Means testing higher earners
Because Social Security is not a welfare program, millionaires are entitled to those monthly benefits in retirement. Another potential option for preventing benefit cuts is to means test recipients and deny or reduce benefits for higher earners who conceivably don’t need the money.
The problem with this approach is that it once again changes the very nature of Social Security. And while it can be argued that someone with a $6 million nest egg doesn’t need Social Security, that doesn’t mean they don’t deserve it after paying into the program for decades.
Either way, lawmakers need to take action soon to prevent Social Security cuts. With the clock ticking down until the program’s trust funds run out of money, the sooner lawmakers come to a solution, the more stable Social Security is apt to be.
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