Millions of seniors today depend on Social Security to make ends meet in retirement. And millions more are expected to follow their lead in the future.
But Social Security is facing a serious funding shortfall. The problem is that the program's main source of revenue is payroll taxes -- the ones workers pay out of their earnings. But in the coming years, as baby boomers exit the workforce in droves, Social Security's primary revenue source is apt to shrink.
Social Security can tap its trust funds to keep up with scheduled benefits -- until those trust funds run out of money. From there, benefit cuts are on the table in the absence of the program having enough funding to keep up with its obligations.
Image source: Getty Images.
Lawmakers really don't want to see benefit cuts happen, as those could spur a national poverty crisis among the elderly. As such, they've been floating different proposals in an effort to shore up Social Security's finances. One specific idea has been gaining some traction -- but it's not necessarily an optimal solution.
Is raising Social Security's full retirement age the right way to go?
Workers who pay into Social Security can collect their full monthly benefits based on their respective earnings histories at full retirement age, or FRA. Right now, FRA is 67 for anyone born in 1960 or later.
What some lawmakers want to do is raise FRA. The Republican Study Committee budget is calling for Social Security's FRA to increase gradually up to age 70. That would leave workers born in 1978 or later with an FRA of 70, not 67. The proposed changes would not apply to anyone aged 55 or older, nor would they apply to current Social Security recipients.
But while some lawmakers feel that raising FRA is a good idea, others disagree. For one thing, this shift makes the assumption that workers have the ability to hold down a job until age 70. That's not always possible due to health reasons. And those opposed to raising FRA argue that workers who don't have degrees, as well as minorities, might struggle to remain gainfully employed through their 70th birthdays.
Filers might claim benefits earlier anyway
The idea of not being able to retire until age 70 may be daunting to some. If this proposal goes through, what may happen is that a large percentage of incoming Social Security recipients opt to take benefits ahead of FRA, which is an option right now. Doing so means accepting a lower monthly benefit for life. But that's a financial hit many people may be willing to take if it means getting to retire at a more preferable age.
But if enough people file for benefits early after FRA is increased, it might still put a pretty large strain on Social Security's limited financial resources. So while this proposal is still a viable one, it's certainly not without flaw -- and it may be a solution that a lot of people wind up extremely unhappy about.
