The Social Security Administration (SSA) publishes a report outlining the program’s financial situation every year. Because Social Security plays such a large part in the economic well-being of many families, Americans have a genuine interest in its financial strength. In 2020, 65 million individuals got Social Security benefits, with 175 million paying into the program via payroll taxes. According to the Center for Budget and Policy Priorities, nearly one-third of all older Americans depend only on Social Security to pay for their retirement. Simply getting their Social Security payment has lifted ten million Americans out of poverty. Approximately half of all elderly individuals in the United States rely on Social Security for at least half of their retirement income. In 2020, Social Security handed out over $1 trillion in payouts to 65 million people. Since 2010, the system has been taking in less income than it pays out in benefits, and reserves have made up the difference. Here’s a glimpse at what the future may hold for Social Security. According to the 2021 Social Security Trustees report, under present legislation, Social Security’s trust funds would be depleted by 2034, thus slashing the payouts by 22%. However, Congress might make changes to the program to make it better. “That makes a lot of folks uncomfortable or apprehensive,” says Beau Henderson, founder of Gainesville, Georgia-based RichLife Advisors. “People have told me that I won’t be able to survive on 78% of my Social Security income. But, not so quickly, I say. I anticipate them to continue to make little adjustments to maintain it.” A few fundamental changes to the Social Security program might ensure its long-term viability. “22 percentage points will cut benefits if there is a shortfall in 2034 and Congress does nothing for the next 12 or 13 years,” says Eric Kingson, a professor at Syracuse University’s School of Social Work and co-author of Social Security Works for Everyone: Protecting and Expanding the Insurance Americans Love and Count on. “The Congress will not sit on its hands. Nobody wants to be in Congress on the day they have to tell their people, Oh well, we had to slash your benefits by 22%.” An Older Full Retirement Age (FRA) To date, Congress’s most significant Social Security change has been to raise the retirement age. Congress passed legislation in 1983 that would progressively raise the retirement age from 65 to 67 years old. The full retirement age for individuals born in 1955 is now 66 and 2 months. For individuals born in 1960 or after, the full retirement age will progressively grow to 67. “I would not be shocked if, in the future, that (full retirement age) is increased to 67 and two months, four months, six months, or even longer,” Henderson adds. “That’s a tweak that might save the system.” Waiting until (age) 67 rather than 66 will have little influence on how I plan and make choices, but it will keep the system functioning for a longer length of time.” According to Kingson, raising the full retirement age diminishes benefits for lower-income and disadvantaged employees, who typically begin receiving benefits at 62. Many individuals start receiving benefits early because they cannot hold down a job due to health concerns or unemployment. If you wait until you reach the full retirement age of 66 to begin receiving Social Security benefits, your monthly income will reduce by 25%. Early claiming reduces benefits considerably more for people nearing full retirement age. Those who claim at age 62 will reduce their benefits by 30% if the full retirement age raises to 67. “That’s a significant reduction in benefits,” Kingson observes. “And it disproportionately affects low-wage workers and people of color, primarily African Americans and indigenous peoples, as well as Latinos to some degree.” Increased Social Security Payroll Contribution Cap FICA taxes are deducted from employees’ paychecks to help pay for Social Security and Medicare. In 2021, the maximum income subject to Social Security tax will be $142,800, up from $137,700 in 2020. You pay a 6.2% Social Security tax on your earnings until they reach the maximum taxable amount, modified each year. From $76,200 in 2000, the limit has increased dramatically. According to Kingson, eliminating the ceiling on taxable payroll contributions would cover half to two-thirds of the estimated Social Security deficit. Another option for increasing program financing is to raise the payroll tax. According to Kingson, polls suggest that Americans are willing to accept minor increases in the payroll tax provided benefits are not eliminated. “By and large, both Republicans and Democrats are considerably more concerned about the benefits not being available than they are about paying a little additional money.”
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