As Social Security approaches its 90th birthday, uncertainty reigns…and it has been building for years. What solutions are on the horizon?
Unhappy birthday?
The reserves used to pay the nation’s 70 million recipients is expected to be depleted by 2035, according to the agency’s trustee report released earlier this year. Benefits could be cut by 17 percent if that happens.
As dire as the warnings are, they are not new. Yet, Congress has failed to take the actions necessary to shore up and extend the life of the Social Security fund and regain the confidence of retirees and especially pre-retirees. And, unfortunately, that uncertainty often comes into play when people are deciding on when to file for benefits.
When to file for Social Security
Workers can start to draw benefits at 62, which is considered early retirement. But their benefits are drastically reduced for life by about 30 percent had they waited for full retirement age. Yet, people are increasingly choosing the option because they worry that the money won’t be there if they wait.
“The worst thing that is happening here – because of Congress not acting – is you do have people saying, I’m just going to grab it as soon as I can, because I’m afraid it’s not going to be there,” says Franklin, a Certified Financial Planner.
You are entitled to full benefits at full retirement age, which is 66 if you were born from 1943 to 1954. It increases gradually if you were born from 1955 to 1960 until it reaches 67. However, for every year you wait after that, your benefits increase by an additional 8 percent, until age 70.
The Psychology of Timing Benefits
Many people take Social Security early because they need the money…but there are also psychological reasons for prematurely starting Social Security even when it doesn’t make financial sense.
“One reason is that workers, after years of payroll taxes being deducted from their paychecks, feel a sense of ownership about their future benefits – and they are eager to claim what is theirs,” according to the Center for Retirement Research.
Increasingly, though, future recipients file to take early benefits because they are afraid that benefits will not be there when they retire or that they will have to take reduced benefits. That, says Social Security expert Mary Beth Franklin, is unfortunate.
“The worst thing that is happening here – because of Congress not acting – is you do have people saying, I’m just going to grab it as soon as I can, because I’m afraid it’s not going to be there,” says Franklin, a Certified Financial Planner.
“And while there are good reasons to claim your benefits early: if you need the money, or if you’re in poor health and not likely to reach average life expectancy,” she says. “But it’s a shame that people are grabbing permanently reduced benefits out of fear.” She puts the blame squarely in the lap of Congress. “You should at least be giving some sort of reassuring messages to the American public, so people aren’t grabbing these reduced benefits early.”
Some solutions
Increasing the income subject to Social Security. While Congress has yet to act to shore up the system, one proposal under consideration is increasing the income subject to Social Security taxes, currently $168,600 in 2024. That has increased 20 percent in the last five years (it was $132,900 in 2019), says MaryJane LeCroy, managing director and senior wealth advisor at Linscomb Wealth in Houston, Texas. “So, I can see that increasing,” she says.
Raise the Retirement Age. Another proposal would increase the retirement age, currently 66 to 67, depending on when you were born.
Means Testing Benefits. Perhaps the most controversial is a proposal for means testing, which would reduce benefits to those whose income or assets exceed specific thresholds.
None of the proposals has receive traction in Congress. “But something needs to be done,” says LeCroy.
The Current Status of Social Security
However, a few things are certain as Social Security approaches its 89th anniversary this month.
- After cost-of-living increases of 8.7 percent in 2022 and 3.2 percent in 2023, it will likely be less for 2024. We won’t have an indication until October, but initial estimates are running at 2.3 percent. “Unfortunately, though, 2025’s Social Security COLA is shaping up to be a bad-news situation, no matter how we look at it,” according to The Motley Fool, a personal finance website.
- If Americans continue recent trends, 27% will take Social Security at 62. Most Americans (60%) take Social Security before full retirement age, according to the Social Security Administration.
A Look Ahead for Social Security
Until something is done, the uncertainty about the future of Social Security will persist, especially for Gen Xers and younger.
“I’m not sure that I will always plan for Social Security for people under the age of 50 right now, LeCroy says. “I would rather err on the side of caution and be more conservative and say, let’s not rely on that (Social Security) income going forward.”
Education is the best thing you can do, says LeCroy. Read the Trustees Report and go to the SSA site to see what their benefits will be and when they should apply. “You have to just be properly educated, whether that be your own research and speaking with financial professionals and even talking to the local Social Security office if you can, to determine what is best for you,” she says.
YOUR TURN
What do you think will be the future for Social Security? What do you think of any of the proposed solutions? Share your thoughts in the comments!
Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com
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