The idea that Social Security is about to become bankrupt is widely held. In a Nationwide Retirement Institute poll, 75% of seniors (50 and older) expressed concern that the program won’t have enough money at some point in their lives, and over 25% said they didn’t think they would ever receive any retirement benefits at all. Although those ideas are understandable, they are not supported by reality. Numerous workers are considering filing for benefits early because of the likelihood of significant benefit reductions in 2034 due to the severe funding issue facing the Social Security program.
Social Security Trust Fund
Over the next ten years, it is anticipated that the Social Security program will run at a deficit that is, spending will surpass revenues. By 2034, that might deplete the SSA trust fund. But benefit reductions, not bankruptcies or benefit terminations, would result from a depleted trust fund. Why? 5.4% of program revenue was generated via trust fund interest in the previous year. Payroll taxes (90.6%) plus Social Security bonus taxes (4%), which provide money, accounted for the remaining amount. Both of these sources are secure. Therefore, there is no possibility that Social Security will cease to exist or pay benefits.
For retirees, meanwhile, the potential loss of one source of funding still poses a significant issue. When the trust fund for Social Security runs out of money, benefit reductions will happen automatically. By 2034, benefits will have been slashed by at least 20%. While Congress still has ten years to come up with a different plan, experience indicates that benefit reductions of some kind are unavoidable. That places workers in a difficult situation as they approach retirement. It can make sense to apply for Social Security as soon as feasible (at age 62) to offset benefit reductions. But there’s a big drawback to that choice.
Numerous Social Security Reforms
Most people may maximize their lifetime income by deferring Social Security benefits until they are 70 years old, according to research. Very few people, though, do so for so long. 91% of newly eligible retirees last year filed for Social Security before turning 70, and a large number of them were undoubtedly motivated by the prospect of payment reductions. Is it wise to start collecting Social Security benefits early to mitigate the effects of potential reductions? The consensus among experts is that there are two primary reasons why the answer is no.
First of all, early Social Security claim filing could backfire because benefit reductions in the future could come in a variety of forms. Numerous Social Security reforms that would raise money and reduce benefits to differing degrees have been proposed by lawmakers. However, there is insufficient data to enable well-informed decision-making. Second, historical experience indicates that future benefit reductions will most likely occur gradually and exclude both existing beneficiaries and those who may qualify in the ensuing ten years. For instance, by increasing FRA from 65 to 67, the 1983 Amendments essentially reduced Social Security income by 13%. However, that shift took place over several decades and did not affect those who were born before 1938.
