Social Security is facing a financial shortfall. There's really no way to sugarcoat it. In the coming years, it expects to spend more on benefits than what it takes in thanks to the large number of baby boomers existing the workforce.
Thankfully, Social Security has trust funds it can tap to make up its revenue shortfall. But once those trust funds are depleted, benefit cuts will be on the table unless lawmakers manage to come up with a fix.
Now there are different solutions that have been introduced along those lines, and one is to raise full retirement age (FRA), which is when filers are entitled to their monthly benefits without a reduction. Currently, FRA is 67 for anyone born in 1960 or later, but lawmakers have suggested pushing it back to 68. Doing so could eliminate 14% of Social Security's projected shortfall, according to the University of Maryland's Program for Public Consultation.
Image source: Getty Images.
But while raising FRA may be a good way to prevent future benefit cuts, it could make a lot of people unhappy by forcing them to delay their retirement plans. And that's a possibility you may have to get on board with.
Will you have to delay retirement?
To be clear, changing FRA from 67 to 68 is just a proposal -- it's nowhere close to being an official solution to Social Security's financial woes. But it's a reasonable idea that lawmakers are apt to consider, namely because life expectancies have increased since FRA was established. And so asking people to delay retirement by a year doesn't read like such a ludicrous thing.
In fact, Social Security recipients are allowed to claim benefits before FRA -- as early as age 62. Filing before FRA means accepting a reduced benefit, but that's a penalty some seniors are willing to face if it means getting their money sooner and getting to retire when they want.
But if you don't have much in the way of retirement savings and expect to be heavily dependent on Social Security during your senior years, then you may not be able to afford a lower benefit. And so in that case, you might have to delay your retirement by a year if FRA is moved back.
It's down to the wire
The latest update from the Social Security Trustees has the program's trust funds running out of money by 2035. That timeline could change a bit, but generally speaking, lawmakers have a limited amount of time to find a fix for Social Security's financial problems. If they don't, and benefit cuts are implemented, it could create a huge crisis for the many seniors who get most or all of their income from Social Security.
While raising FRA is certainly a viable solution, it's not the only one on the table. Other suggestions include imposing Social Security taxes on higher levels of income and/or raising the Social Security tax rate. Ultimately, lawmakers will have to dig into the math to see which solution does the best job of addressing the financial shortfall at hand while minimizing the sacrifices workers and retirees are forced to make.
