The senior editor for retirement at the U.S. News & World Report posted an informative article about six different ways to fix the Social Security system that eventually will run out of money if there are not changes made to the system. After looking at the different possibilities we can come to the conclusion that they are all viable options that could be left on the table for Congress to consider, but getting Congress to act on anything involving Social Security is a difficult proposition. Let’s take a closer look at the six different options the U.S. News & World Report identified.
- Increase the payroll tax: Increasing Social Security taxes will definitely bring more money in for retirement and disability benefits. Currently, workers are taxed at 6.2 percent of their earnings while employers chip in another 6.2 percent. This proposal suggests both employees and employers increase the rate to 7.6 percent between 2028 and 2057 and up to 9 percent in 2058 and beyond. This would eliminate any sort of funding shortfall and provide for some Social Security reserves.
- Eliminate the taxable minimum: This seems to be a topic very few people know about. As of 2016, workers pay Social Security taxes on their earnings up to $118,500, but all income earned over this amount is not subjected to Social Security taxes. The story about these options in the U.S. News & World Report indicates that if Social Security taxes applied to earnings above $118,500, it would eliminate about 71 percent of Social Security’s current funding deficit.
- Increase the retirement age: This suggestion is also a common one, but Congress is scared to act because no one wants to be told they have to wait to retire, but it may work better if the retirement age increases over time. Originally the retirement age for full benefits was 65 and that was increased gradually so that all people born 1960 and later will have to wait until age 67 to reach full retirement age. The article suggests increasing the retirement age to 68 beginning in 2022, which could eliminate 13 percent of the current funding gap.
- Increase early retirement age: Currently workers can collect early Social Security retirement benefits at age 62 if they are willing to take less money every month. The suggestion from the article is to increase the early retirement age from 62 to the age of 65, which used to be the full retirement age. This would be a questionable choice because government estimates suggest that this would not decrease the deficit and would actually increase it a tad. A 2 percent deficit could increase because when the early retirement age increases there is an expected increase in the number of disability claims, which would deplete the Disability Trust Fund.
- Cut Benefits: This has to be something Congress wants to avoid, but it remains a viable option up for discussion. If nothing is done and Social Security depletes itself on its own there will already be a reduction of more than 20 percent in benefits by 2035. The suggestion of the article is to limit the decrease in benefits to 3 percent for people who are eligible for benefits beginning in 2016 and it would reduce 14 percent of Social Security’s current funding shortfall.
- Reduce benefits for high earners: Currently there is no income limit on collecting Social Security benefits. That means that billionaires and millionaires can collect Social Security benefits on top of their already massive wealth. If payments are reduced for high earners it is estimated that 26 percent of Social Security’s funding deficit could be eliminated.
For a closer look at these proposals click here.
