You shouldn’t be concerned that Social Security may soon stop providing seniors with benefits. Although there will be a financial shortfall for the program in the upcoming years, it won’t be severe enough to result in benefits going away entirely.
Social Security Benefits; Source-CNET
Social Security Benefits To Be Reduced
Instead, payouts will probably be reduced by around 20% when Social Security’s trust funds run out, which is anticipated to happen in roughly ten years. While it’s not ideal, it’s still preferable to receiving no advantages at all. However, a 20% reduction in payments could have a disastrous effect on your finances if Social Security provides the majority of your retirement income. Thus, it’s critical to begin making plans for that eventuality right away. Legislators are devoted to doing all within their power to prevent cuts to Social Security.
Ways To Prevent Reduction Of Social Security Benefits
Here are two methods to prevent those cuts. Based on your individual earnings history, you may be entitled to full receipt of your Social Security benefit each month (FRA) if you aren’t eligible for a decrease. For those born in 1960 or later, FRA is 67. But to improve Social Security’s financial position, politicians have suggested increasing FRA to 68 or 69. The new rule would need to be implemented gradually if this were to occur. Legislators couldn’t just decide to postpone FRA and leave certain individuals who are about to turn 67 in a bind. Nonetheless, it remains a possibility and might spare Social Security from having to cut back on benefits.
Payroll taxes provide the majority of Social Security’s funding source. In actuality, the program’s numerous financial difficulties stem entirely from the baby boomers’ mass retirement from labor. Additionally, Social Security will receive less funding if there are fewer workers. A potential remedy for that would be to increase taxes. The Social Security tax rate is now 12.4%. Salaried employees share this tax with their employers; self-employed individuals are responsible for paying the whole amount due. Raising the tax rate might increase funding for the program and stop cuts from occurring.
Social Security Taxation
Raising the Social Security tax wage cap is an additional option. Wages over $160,200 are currently exempt from Social Security taxation. That cap will increase to $168,600 the next year. The program may greatly benefit from implementing Social Security taxes at a considerably higher income threshold or from doing away with the wage cap and taxing all income. It’s possible, but not guaranteed, that Social Security will have to reduce benefits in ten years. It’s advisable to step up your savings efforts now if you’re still employed to account for that possibility.
Additionally, if you’re already retired and heavily dependent on Social Security, you might need to think about taking up a part-time job while you still have the opportunity (if you’re still able to) or making other changes to stretch your income and save money. Social Security has already faced the prospect of benefit reductions. There’s a fair possibility lawmakers will be able to avoid benefit shrinkage as they have in the past. It’s another matter entirely whether the option they ultimately settle on is acceptable to taxpayers and employees.
