As Social Security approaches its 90th birthday, uncertainty looms large, a concern that has been growing over the years. What potential solutions are in sight?
Is Social Security Facing an Unhappy Birthday?
The reserves that support the 70 million recipients of Social Security are projected to run out by 2035, as indicated in the agency’s trustee report released earlier this year. If this happens, benefits could be reduced by 17 percent.
Despite the long-standing warnings, Congress has failed to take necessary steps to secure and prolong the life of the Social Security fund, leaving retirees and pre-retirees feeling uncertain. This uncertainty often influences decisions on when to start claiming benefits.
Choosing the Right Time to File for Social Security
Individuals have the option to begin receiving benefits at 62, which is considered early retirement. However, this results in a significant lifetime reduction of about 30 percent compared to waiting until full retirement age. Many individuals are opting for early benefits out of fear that the funds may not be available later on.
“Due to Congress’s inaction, people are rushing to claim benefits as soon as possible, out of fear that the funds may not be present,” explains Franklin, a Certified Financial Planner.
Full benefits are granted at full retirement age, which is typically 66 for those born between 1943 and 1954. For those born between 1955 and 1960, the full retirement age gradually increases to 67. Delaying benefits beyond this age results in an additional 8 percent increase for each year, up to age 70.
The Psychology of Early Benefit Claims
While some individuals may claim Social Security early out of financial necessity, others do so for psychological reasons, even when it may not be the most financially sound decision.
Research from the Center for Retirement Studies suggests that individuals feel a sense of ownership over their future benefits after years of paying into the system, leading them to claim benefits early. However, the prevailing fear of reduced or unavailable benefits in the future is unfortunate, according to Social Security expert Mary Beth Franklin.
“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.
Various Proposals for Addressing Social Security Challenges
Increasing the Income Subject to Social Security: One potential solution involves raising the income subject to Social Security taxes, which currently stands at $168,600 in 2024.
Raising the Retirement Age: Another proposal suggests raising the retirement age beyond the current range of 66 to 67.
Means Testing Benefits: A controversial proposal involves means testing, which would reduce benefits for individuals with income or assets exceeding specific thresholds.
Despite these proposals, Congress has not taken action. However, addressing the challenges facing Social Security is imperative for the program’s sustainability.
The Future of Social Security
As Social Security nears its 90th anniversary, uncertainty persists, particularly for younger generations such as Gen Xers.
It may be prudent to avoid relying solely on Social Security for income, suggests MaryJane LeCroy, managing director and senior wealth advisor at Linscomb Wealth. Taking a cautious approach and educating oneself on benefit options and retirement planning is essential.
Your Thoughts
What are your predictions for the future of Social Security? How do you feel about the proposed solutions? Share your thoughts in the comments!
Rodney A. Brooks is an award-winning journalist and author. His retirement columns can be found in U.S. News & World Report and Senior Planet. Connect with him at www.rodneyabrooks.com.
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