For Mark Roberts’ Use: Every election year, one of the most popular subjects debated by candidates involves Social Security. Of course, we all need to pay attention to the problems concerning Social Security in non-elections years as well!
You may have heard that Social Security is “running out of money”. While this isn’t precisely true, it is true that the program is in a bit of trouble. Benefits were scheduled when there was a surplus of money, but that surplus will be depleted by 2033. At that point, Social Security will only be able to pay out about 77 percent of scheduled benefits.
While we always say that no one should rely upon Social Security to fund their entire retirement, it is a bit disconcerting to realize benefits could be reduce so drastically in the future. In response to the issue, four potential plans to fix the Social Security deficit are commonly debated:
Gradually raise the eligibility age. By gradually raising the age of eligibility, everyone would need to work – and contribute to the program through payroll taxes – a little bit longer. A little more money would go in, and a little less would come out.
Reduce benefits for high-income beneficiaries. This plan would reduce benefits only to those in a higher income bracket, allowing Social Security to maintain benefit levels for those with lower incomes.
Change the COLA calculation. This popular plan involves linking the annual Cost of Living Adjustment (COLA) to the chained Consumer Price Index (CPI). This plan would theoretically save the program money by slightly reducing the COLA each year.
Raise the earnings cap. Currently, all earnings up to 117,000 dollars annually are subject to payroll taxes which help to fund Social Security. Raising that earnings cap would translate into more tax dollars funneled into the program.
There are benefits and drawbacks to each of these plans, and your preference may be linked to your general political beliefs. One thing is certain, however; we would all benefit from implementing a solution sooner rather than later. In the meantime, remember not to rely on Social Security to fund your retirement, and think of your future benefits as a supplement to your planned retirement income.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believedto be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
Source: The Associated Press – NORC Center for Public Affairs Research, 2013
