Unless Congress does something to change it, the Social Security Administration (SSA) will reduce payments by as much as 20 percent by 2033. The talk about it has continued for a couple of years, but now it is predicted to take place one year sooner than projected earlier.
The depletion of money in the Social Security trust fund has continued for some time. Congress has not yet acted on the need to make changes, and, so far, there is no unity on a remedy for the problem.
Currently, more than 67 million Americans receive Social Security checks every month. Many of them depend on it and have no other sources of income. A drop of 20 percent would hurt them and possibly make it nearly impossible for many of them to make ends meet.
The Shortage of Funds Paid Into the Trust
One of the reasons the Social Security Administration is having problems is that since 2011, the amount of the benefits paid out has been more than the amount paid into the trust fund. The Association of Mature American Citizens (AMAC) reports that funds in the trust will be depleted by 2033. At that time, the Social Security Trustee’s Report states that retirees will have their benefits cut by 23 percent.France’s Similar Problem
America’s problem with Social Security is very similar to what is currently happening in France. President Emmanuel Macron imposed an increase of the retirement age from 62 to 64 by 2030. As a result, strikes and riots are occurring across the country.The Causes of the Funding Shortfall
The SSA attributes the shortage of funds going into the trust to the recent change in the birthrate. American women have fewer children now—going from an average of three to two. The agency, however, denies that the longer lifespans of Americans are causing it.Another cause is that more people are retiring now, with fewer baby boomers than workers paying into the program. Many young people are not working and are living off their parents, which is why you see so many “Help Wanted” signs.
Social Security payments were increased by 8.7 percent this year due to a high inflation rate last year. Payments went from an average of $1,681 to $1,827 per month to about 67 million people, and is why the original shortfall date—originally projected for 2034—has been moved to 2033.
SSA Predicts Stability After 2035
After 2035, the SSA predicts that its ability to meet the demands will be met. Sources of income will include raises in taxes, taxes on Social Security benefits paid by every employee and employer, and from people in higher income brackets that must pay taxes for their Social Security benefits.Possible Solutions to the Funding Problem
Various agencies and individuals have proposed several solutions to resolve the shortfalls of the SSA. The first one, which seems to be the predominant one in Congress, is to raise the full retirement age (FRA)—that is, the age at which seniors can start drawing full Social Security benefits.Although it is currently being discussed in Congress, this idea has considerable opposition. Republicans have proposed that the FRA should be raised from 67 to 70—which will affect when people born in 1978 (or later) can retire with full benefits.
Another proposed option, mentioned by Fool, is raising the amount of income taxable by Social Security. For 2023, the ceiling on taxable income for Social Security taxes is $160,200—$13,200 more than the limit for 2022. Any income higher than this is not subject to Social Security taxes. Once you reach full retirement age, you will not pay any taxes for Social Security—no matter how much you earn.
A third option is to raise the amount of taxes taken out of each paycheck for Social Security. It can be raised enough to meet the gap.
People planning to retire before 2033 should reevaluate their retirement plans and their income during retirement. A 23 percent cut in Social Security benefits is a sizeable decrease in income which you will need to consider.
Reasons to Wait Before Drawing Social Security Benefits
Although you could claim benefits at 62 (61 and nine months), there are some good reasons why you may want to wait until you reach full retirement age. Probably the most beneficial one is that you get much larger checks the longer you postpone collecting Social Security. After age 62, Social Security increases by 8 percent each year, and reaches the maximum amount you will receive at age 70. Putting this in perspective, the SSA reveals that the average check you would receive at 62 would only be $700 per month; at full retirement age (67), it would be $1,000; but at age 70, it would be $1,240—a 77 percent increase over benefits received at age 62.Another reason is that the longer you work, the more money you can earn from Social Security. The amount continues to build until you reach age 70. Remember that the larger the check you get from Social Security, the less you need from other sources.
Work Longer and Increase SS Payments
You can receive Social Security and still work if you choose to. Depending on your income bracket, the SSA may tax your Social Security benefits. Individuals earning less than $25,000 and married couples earning less than $32,000 are not taxed on their Social Security income. Individuals earning $25,000–34,000 and married couples filing jointly earning $32,000–44,000 are taxed on 50 percent of their Social Security income. People earning more than this are taxed on 80 percent of their Social Security income.Some States Tax Social Security Benefits
There are 11 states that tax Social Security benefits. If you live in one of those states, it means your Social Security checks will be reduced even more. Those states are Colorado, Connecticut, Montana, Kansas, Minnesota, Missouri, Rhode Island, Nebraska, New Mexico, Vermont, and Utah.Since 2033 is still some distance away, there is time to correct the predicted shortage of funds. Congress will need to act on it. Until they do, you will want to review your retirement savings plan to ensure that you will have enough to retire comfortably by that time.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
