Millions of seniors today rely on Social Security to cover their bills in retirement. And for many older Americans, those benefits are their primary or only source of income.
The problem, though, is that Social Security is facing a funding shortfall. The program’s main revenue source is payroll taxes. But in the coming years, that source is expected to shrink. We can thank a mass exodus of baby boomers from the workforce for that.
Now, Social Security has trust funds it can tap to keep up with scheduled benefits, even once its payroll tax revenue is cut. But once those funds are depleted, Social Security may have to reduce benefits, despite the financial upheaval recipients are apt to experience as a result.
Meanwhile, the Social Security Trustees just released their latest report. And it contains one piece of pretty unfavorable news.
Benefit cuts could happen sooner than anticipated
The Social Security Trustees are now projecting that the program’s trust funds will be out of money by 2034. At that point, Social Security will only have the financial means to pay 80% of scheduled benefits.
What makes this news particularly disturbing is that 2034 was not the projected trust fund depletion date the Trustees pointed to last year. Rather, it was 2035. So basically, this latest report puts benefit cuts one year ahead of last year’s anticipated timeline.
Of course, benefit cuts are bad news for current workers who hope to collect their share of Social Security once they retire. But they’re even worse news for the millions of seniors who are already retired and can’t afford a hit to their income.
Are benefit cuts a definite thing?
It’s possible that lawmakers will come up with a viable solution to fix Social Security so that benefits don’t have to be cut, or at least not to the tune of 20%. But as of now, there’s no official solution in the works. And that’s problematic, seeing as how the program’s trust funds could be out of money in a little more than a decade.
One proposal that’s been floated to pump more money into Social Security is to raise full retirement age, which is when seniors are entitled to their full monthly benefits based on their respective earnings histories. Right now, full retirement age is 67 for anyone born in 1960 or later. Moving that age to 68 or 69 buys Social Security some financial leeway, but it also might force millions of hardworking Americans to delay their retirement when they’d rather not.
Another potential means of avoiding benefit cuts is to raise the Social Security tax rate. But that could put a strain on workers who are already losing a large chunk of their income to taxes.
All told, preventing Social Security cuts won’t be easy. But apparently, lawmakers now have even less time to put a solution in place. If they don’t act quickly, millions of retired Americans might find themselves teetering on the edge of poverty when their primary source of income is slashed substantially.
