Seniors who get the bulk of their income from Social Security are potentially in serious trouble. The reason? Social Security may be looking at benefit cuts in a little over 10 years. And if lawmakers don't intervene, many retirees could wind up plunged into poverty.
The good news is that there are different solutions lawmakers have been discussing to help address Social Security's pending financial shortfall. But whether they actually manage to make one work is a different story.
Social Security needs help
In the coming years, Social Security expects to owe more money in benefits than it collects in revenue. A big reason for this is the mass retirement baby boomers are expected to move forward with. As boomers leave the workforce, they'll stop paying into Social Security and will also start drawing benefits of their own. That's a bad combination.
Thankfully, Social Security has trust funds it can tap to keep up with scheduled benefits for a while. But recent projections point to those trust funds running out of money by 2035. At that point, benefit cuts will be on the table unless lawmakers intervene.
Can lawmakers prevent benefit cuts?
Do lawmakers have the ability to stop Social Security from being forced to slash benefits? Yes. Will they manage to act in time? That's questionable.
Although Social Security's financial woes aren't exactly news -- the program's Trustees have been sounding warnings for years -- lawmakers have been slow to act on addressing them. But also, while lawmakers have different proposals to work with that could prevent benefit cuts, they all come with their share of drawbacks.
One solution for pumping more money into Social Security is to raise the wage cap, which currently exempts earnings over $147,000 from Social Security taxes. Doubling that cap, or lifting it entirely, could result in loads more payroll tax revenue for Social Security, but it's a solution that's likely to be unpopular among the wealthy. And as such, lawmakers may be hesitant to act on it.
Another option is to push back Social Security's full retirement age from 67 for those born in 1960 or later to a later age -- say, 68 or 69. Doing so could save the program a lot of money. But again, lawmakers fear the backlash that might ensue if workers feel forced to delay retirement.
And then there's the idea of reducing benefits among the wealthy only. The logic is that millionaire retirees don't need their Social Security benefits the same way seniors with no savings do, so cutting their benefits shouldn't be as big a deal. But Social Security has long prided itself on not being a welfare program, and this change might alter its function and perception in an unfavorable way. That alone could push lawmakers to steer clear of this solution.
A tough situation
All told, there are options for giving Social Security the revenue boost it needs to prevent benefit cuts. But unfortunately, lawmakers are in a tough spot when it comes to taking action. That's why current and future beneficiaries alike need to brace for Social Security cuts -- despite the catastrophic impact that might have.