Millions of seniors today rely on Social Security to cover their bills in retirement. And for many older Americans, these benefits are their main or only source of income.
The problem, however, is that Social Security faces a lack of funding. Payroll taxes are the program’s main source of revenue. But in the years to come, this source should decrease. We can thank a massive exodus of baby boomers from the workforce for that.
Now, Social Security has trust funds it can tap to keep pace with scheduled benefits, even after its payroll tax revenue is reduced. But once those funds run out, Social Security may have to cut benefits, despite the financial dislocation recipients are likely to experience as a result.
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Meanwhile, the Social Security Trustees have just released their latest report. And it contains some rather unfavorable news.
Benefit cuts could happen sooner than expected
Social Security trustees now project that the program’s trust funds will run out of money by 2034. At that time, Social Security will only have the financial means to pay 80% of scheduled benefits.
What makes this news particularly troubling is that 2034 was not the expected exhaustion date for the trust fund given by trustees last year. It was more like 2035. So basically this latest report puts the benefit cuts a year ahead of last year’s planned schedule.
Of course, the benefit cuts are bad news for current workers hoping to collect their share of Social Security when they retire. But it’s even worse news for the millions of seniors who are already retired and can’t afford to cut their incomes.
Are benefit cuts a definite thing?
Lawmakers may come up with a workable solution to fix social security so that benefits do not have to be reduced, or at least not by 20%. But for the moment, no official solution is in preparation. And that’s problematic, given that the program’s trust funds could run out of money in just over a decade.
One proposal that has been floated to inject more money into social security is to raise the full retirement age, that is, when older people are entitled to their full monthly benefits based on their respective income histories. Currently, the full retirement age is 67 for anyone born in 1960 or later. Moving that age to 68 or 69 gives Social Security financial leeway, but it could also force millions of hard-working Americans to delay retirement when they wouldn’t.
Another potential way to avoid benefit cuts is to increase the Social Security tax rate. But that could put a strain on workers who are already losing much of their income to taxes.
All in all, preventing cuts to Social Security will not be easy. But apparently lawmakers now have even less time to implement a solution. If they don’t act quickly, millions of retired Americans could find themselves on the brink of poverty when their main source of income is drastically reduced.