You may have heard the persistent rumors, going around for years now, that Social Security is “running out of money”. While that isn’t exactly true, Social Security will soon experience a budget problem. Benefits were originally scheduled years ago, when there was a surplus in the budget. When that surplus is depleted in 2033, the Social Security Administration will only be able to pay out about 77 percent of scheduled benefits.
This problem is obviously worrisome, but policy makers have come up with several plans to fix the budget gap. The following four plans are the main proposals which are currently being examined and debated:
Raise the age of eligibility. Under this plan, the age at which workers are able to claim benefits would be gradually raised. Everyone would work, pay taxes, and contribute to the program a little longer. At the same time, a little less money would come out, since everyone would have to wait a little longer before claiming their benefits.
Reduce benefits for those in the high-income brackets. Benefits would remain the same for people in lower income brackets, but higher-income Americans would receive lower payments.
Raise the earnings cap. Currently, income up to 117,000 dollars annually is subject to payroll taxes which fund the Social Security program. If the earnings cap is raised, more income can be taxed. The result will be more money going directly into the program.
Change the COLA calculation. Each year, Social Security beneficiaries receive slightly higher payments due to a cost of living adjustment. Under this plan, the cost of living adjustment would be linked to the chained Consumer Price Index. Theoretically, this would reduce cost of living adjustments slightly, saving the program money over time.
Politicians continue to debate the merits of each of these plans, and your beliefs may be tied to your general political leanings. The main thing to remember is that the sooner a solution is implemented, the better for everyone. In the meantime, remember not to count on Social Security to fund your entire retirement, and view it as a supplement to your income instead. Consult with your financial advisor to create a solid retirement plan that doesn’t count too heavily on Social Security to pay your living expenses.
Source: The Associated Press – NORC Center for Public Affairs Research, 2013
