In retirement, Social Security is the main source of income for millions of seniors for many, it is their only source of income.
So far, significant changes may be on the horizon, and the Social Security program is currently the subject of heated debate in Washington. Some of these prospective changes may have an impact on your benefits, and it is possible that your payments may decrease in the future.
Social Security Changes
Although none of these events are fixed in stone, it is prudent to remain informed just in case. In addition, there are three prospective Social Security reforms to monitor.
1. Higher Retirement Age
As the year 2034 approaches, Congress is under increasing pressure to address the Social Security deficit. An increase in the retirement age is one of the potential answers that lawmakers are still debating.
Your full retirement age (FRA) is the age at which you are entitled to receive the maximum benefit amount based on your work history. Several lawmakers have proposed increasing the FRA to 68 or older from the current range of 66 to 67 years.
A higher FRA means that senior citizens must wait longer to receive their full benefits. And if you begin receiving benefits before your FRA, your monthly payments will be decreased.
2. Reduced Benefits For High Earners
Reducing payouts for the top 20% of earners is another potential answer to Social Security’s cash shortfall.
The highest-earning retirees would still receive greater compensation than the average retiree, but the disparity would be reduced. Due to the fact that this is still merely a suggestion, there is no definitive information about how much benefits will be decreased or what the income thresholds might be.
Yet, if this idea were to become law, further benefit reductions for higher-earning individuals are possible.
3. Future Benefit Cuts
Social Security has been operating at a deficit for years, meaning it has paid out more in payments than it has received in taxes and other income streams. It has been dipping into its trust funds to pay this deficit, but this money won’t last forever.
According to the Social Security Board of Trustees 2022 report on the program’s status, the trust funds are predicted to be depleted by 2034, at which point there will be just enough income to provide approximately 77% of future benefits.
If Congress cannot find a solution by 2034, benefits might be reduced by up to 23 percent.
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Social Security Uncertainties
The future of Social Security remains uncertain. Due to the importance of the program to millions of Americans, there is a significant possibility that Congress will find a way to avert benefit reductions. Uncertain is, however, what they will choose.
There is also a possibility that Washington would enact many reforms to Social Security, as it will be difficult for any single proposal to properly address the program’s funding problem.
According to calculations from the University of Maryland, increasing the retirement age may only erase around 14% of the gap, and cutting benefits for high earners may only eliminate 11% of the shortfall.
Even raising taxes on people earning more than $400,000 per year, one of the most popular options, would only cut the deficit by only 61%. In other words, there may be numerous substantial modifications in the future to prevent benefit reductions.
Nobody knows if benefit changes are imminent, but it is prudent to be prepared just in case. By taking action now to increase your retirement funds and lessen your reliance on Social Security, you may find it easier to tolerate potential reductions.
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