The Social Security program is currently grappling with a funding dilemma that may result in a 23% reduction in benefits by the year 2033 if Congress fails to intervene. The trust fund for the program is projected to run out by that time, meaning disbursements would need to come exclusively from incoming payroll taxes, which will not suffice for complete benefit payments.
Such reductions would have a tremendous adverse effect on many senior citizens who rely heavily on Social Security. The Social Security Administration reports that 12% of men and 15% of women aged 65 and over rely on these benefits for over 90% of their income. Congress has various potential solutions to tackle the funding shortfall, yet many options face unpopularity.
Options on the table include increasing the Social Security tax rate from 12.4% to 17.3% or raising the retirement age. However, there’s no assurance that any of these proposals will be enacted in time to avert cuts, if at all. While individual circumstances may limit control over changes to Social Security, there are tactics residents can adopt to optimize their future benefits.
The Social Security Administration determines benefits based on a person’s entire earning history and retirement age.
Concerns Over Reductions in Social Security Benefits
Working and maximizing earnings for at least 35 years is essential to optimizing benefits.
The Social Security Administration evaluates the 35 highest-earning years of an individual’s career. If a worker has fewer than 35 earning years, those years without income are counted as zero, leading to a lower total benefit. Additionally, the retirement age has a significant impact on the amount of benefits.
Benefits can be accessed as early as age 62, resulting in a reduction of up to 30%. Waiting to claim benefits until age 70 increases the amount by 8% annually beyond the full retirement age, yielding a total benefit that is 24% greater at age 70 compared to age 67. While not everyone has the luxury to delay retirement, those who do are advised to consider this strategy to enhance their benefits.
For individuals feeling ill-equipped for possible Social Security benefit cuts, taking proactive measures can help lessen the effects. These actions can include maximizing contributions to retirement savings plans, managing spending by downsizing or relocating, and supplementing income with part-time work. It’s wiser to plan for these alternatives beforehand than to be compelled into them due to financial pressures.
