Where is the good news about your Social Security? There may not be any now, and in the future, there may not be any at all.
It is almost universally known that the Social Security Administration says it will run out of funds in 2032. Although some experts disagree with this, there are no legitimate estimates that change it by more than a year. Today, those payments go to retirees, their spouses, children, and survivors of deceased workers.
About 75 million Americans get payments of some type. The largest is 52 million retired workers, followed by 11 million people who are disabled but not yet 65 years old.
The “run out of money” clause is misleading. When Social Security hits the wall, benefit payments will drop to about 71% of their current level.
There have been a number of ideas floated about how payments continue at 100%–at least for some people. The Urban Institute has released a list while lobbying Congress to increase Social Security funding. This list is not uncommon and matches several others.
Among the suggestions is to raise the age at which people can take Social Security. People can today take early retirement at age 62. These will miss out on what is known as “Full Retirement Age (FRA),” which occurs at 67. People can get the maximum payout available if they retire at 70. These dates can change slightly based on the year recipients were born. There are legions of analyses about when people should take their payments, ranging from estimates of when they believe they will die to inflation forecasts. So, one suggestion is to raise the floor for each of these ages by two years.
Another suggestion is to give recipients less than the current COLA formula. The figure is based on inflation in the third quarter of the year before the raise happens. This number is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. The cut would mean payments would be less than inflation. For example, if inflation was 3%, people might only get a 2% payout. The effects of this are obvious, particularly for people who have SS as their sole means of income. This is about 20 million people.
The next idea has to do with a wealth cut-off. This would mean the people who make over a certain amount of money would get fewer or no payments. For example, someone with income over $150,000 would get a modest Social Security benefit compared to the 100% they would get today. And, as another example, people who make over $250,000 would get nothing. The calculation for this would be complex. Would current income be taxed, or would it include passive income as well? Calculating the second part of this may not be easy.
Among the most controversial ideas is that people who are currently in the workforce would pay more into the fund. That means, probably, raising the cap at which these payments are made. Today, that is $184,500. And over a lifetime, the cap is $11,439,000.
The open question is the level of resistance each of these faces, particularly among those who are about receive benefits. In just the last week, the most direct solution was analyzed by the AARP. Bill Sweeney, the senior vice president of government affairs at AARP, said: “But if there is a group of people in Congress that can get together and come up with a bipartisan solution sooner, we would absolutely encourage them to do that because the longer they wait, the harder it gets.” This advice has been ignored and may well continue to be in the future.
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