News reports abound with dire forecasts for the future of Social Security. With trust fund reserves projected to run out by 2035, many wary seniors and anxious pre-retirees look to their legislators to preserve their financial safety net. Over the years, various proposals have been made to address long-term challenges facing Social Security, including potential insolvency due to increased life expectancy.
Raise the Retirement Age
Social Security’s definition of Normal Retirement Age (NRA) varies based on your birthdate, but for much of the younger population, it’s 67 years old. While you’re eligible for reduced benefits at age 62, NRA is the age at which you earn your full benefit. Proponents argue that gradually increasing the NRA would address the reality of longer life expectancy and reduce the number of years benefits are paid. However, opponents believe this disproportionately affects lower-income workers and those in physically demanding jobs.
Increase Payroll Taxes
Social Security is funded by a payroll tax, evenly split between employees and their employers. Both parties contribute 6.2% for a total of 12.4%. There’s a limit to how much of your income is subject to the Social Security payroll tax, for 2024 that amount is $168,600. Supporters believe that increasing either or both of these amounts would boost revenue and ensure long-term solvency. Critics point out that this action could burden workers and employers, particularly small businesses.
“Proponents argue that gradually increasing the NRA would address the reality of longer life expectancy and reduce the number of years benefits are paid.”
Adjusting Benefits
Currently, benefits are calculated based on your past earnings history. Some argue that this leads to increased payments to high-wealth individuals who aren’t dependent on benefits to maintain financial stability. Lowering benefits for high-income retirees or adopting means-testing could allow expanded benefits for lower-income recipients deemed to face greater need.
Switching to a New Inflation Measure
Each year Social Security experiences a Cost Of Living Adjustment (COLA) to keep pace with inflation. This increase is based on the Consumer Price Index which tracks the rise in the prices of certain goods. Some experts believe that using the Chained CPI is a better option, as the Chained CPI takes into account changes in consumer spending in response to rising prices and more accurately reflects inflation rates and the true cost of living.
Reform remains a contentious issue, with no clear consensus on the best approach. As the future of Social Security hangs in the balance the need for a strong retirement plan has never been greater. Reach out to an FRC® trained advisor to make sure you’re prepared.
