Seniors who rely on Social Security benefits to make ends meet are not uncommon. However, the current beneficiaries could be in for a harsh awakening in approximately a decade’s time.
Baby boomers are likely to leave the workforce in large numbers in future years, putting pressure on Social Security’s finances. Why is this so? Payroll tax dollars are the primary source of funding for the program. It’s predicted that the labor force will decline as baby boomers retire, reducing that funding source.
It is possible for Social Security to maintain planned benefits in the face of diminishing revenue through the use of trust funds. But when the trust funds run out, seniors will have to deal with benefit reductions.
Unfortunately, these benefit reductions may not be that far away at all. As recently as a decade ago, the board of trustees for the program predicted that its trust assets would be depleted.
As Social Security’s budget shortfall approaches, lawmakers have proposed a variety of alternatives. It’s possible that future retirees won’t like one solution.
Is it possible that the age at which a person is eligible for full retirement will rise?
At the age of 62, retirees can begin claiming Social Security benefits. Benefits aren’t fully accrued, however, until a person reaches full retirement age (FRA). Rather, if you file before your FRA, you will receive a lower benefit in retirement.
The FRA is not universal. Instead, the following is dependent on the year of birth:
| Year of Birth | Full Retirement Age |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
Legislators are considering increasing the FRA for future beneficiaries. For example, raising the FRA from 67 to 68 could encourage more people to work an additional year, resulting in an increase in payroll tax revenue for Social Security. Benefit cuts could be avoided or delayed as a result.
This idea isn’t altogether absurd, given the rise in the average lifespan throughout time. However, it’s a risky strategy that’s unlikely to succeed.
For people born in 1960 or later, FRA rises steadily with age before reaching a nadir around age 67. Workers, on the other hand, maybe less than enthusiastic about the prospect of having to put off their retirement by one year.
Social Security, on the other hand, is currently offering an 8% annual increase in benefits for those who wait until they are 70 to file their claims. However, as a proportion, few recipients take advantage of this by delaying their claims until they are 70 years old.
Even though claiming benefits at age 62 will result in a reduction in benefits, it has long been the most popular age to do so, notwithstanding this. If the FRA is changed, seniors may choose to retire at 67 nonetheless, which would result in a smaller monthly income for the rest of their lives.
It’s just one option.
The concept of raising the FRA is only one of many that legislators have floated in an effort to save Social Security from being slashed. Additionally, the wage cap for payroll taxes on wages might be increased or eliminated, while seniors with higher incomes could see their benefits reduced.
Every solution has an equal and opposite problem. In order to avoid a situation where Social Security cuts are adopted across the board, policymakers will have to employ some stealth strategy.
The $18,984 in extra Social Security income that the majority of retirees fail to take advantage of
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