With Social Security facing insolvency sometime within the next decade — and losing over 20% of its trust fund by 2032 — legislators are considering multiple options for Social Security reform.
Ideas on the table include changing the way benefits are calculated and raising full retirement age.
Legislators Promote Later Retirement Ages
Americans currently reach full retirement age somewhere between age 66 and 67. Some proposals have the Social Security Administration raising full retirement age. But an alternative would be simply to show Americans the benefits of waiting until age 70 to file for Social Security.
At age 70, you can earn delayed benefit credits, which could result in an 8% per year annual increase in benefits for each year between your FRA and age 70. Legislators and experts alike believe that if they show Americans the math behind the decision, they will realize it’s smart to wait.
One way to do is is by bringing back mailed paper statements. Seeing the numbers on paper is expected to work the same way as when credit card companies show how much interest you’ll pay over the life of your credit card debt. When you see the increased Social Security benefit in black and white, you might rethink your retirement plans.
However, this won’t help those who need their Social Security benefits to get by. “[N]ot everyone has the luxury of deciding when to claim Social Security benefits. For some, the choice is made for them, due to financial stresses or health care needs,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, in a recent Yahoo Finance article.
Social Security currently helps 67 million Americans enjoy their retirement — or simply make ends meet, each month. The Social Security Administration reported that among elderly beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
Benefit Cuts on the Table
Other possibilities to shore up Social Security reserves include benefits cuts across the board. This could mean changing the way benefits are calculated.
One idea would calculate benefits according to the number of years a person worked and paid into the system. Currently, benefits are based on workers’ earnings across their 35 highest-paying years of work. Some believe the proposed change would disproportionately affect people who left the work force for some time, perhaps to serve as caregivers or raise children, or who were forced into early retirement.
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“We’re encouraging everybody to work longer. That’s the policy justification for the change,” Mark Miller, author of Retirement Reboot, told Yahoo Finance. “But it’s just a way to cut benefits and it’s unfair and hits the people who need the money the most.”
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