The Social Security Trustees have spoken. Based on their most recent projections, the program's trust funds will be out of money by 2034. At that point, Social Security might have to cut benefits to the tune of around 20% unless a solution is decided upon.
Clearly, cutting benefits could sentence millions of retired Americans to poverty. As it is, many seniors who get the bulk of their income from Social Security are barely able to make ends meet. Cutting benefits would no doubt spur a major financial crisis among the elderly, and lawmakers certainly don't want that.
But the clock's ticking down for lawmakers to intervene and prevent Social Security cuts. And if they opt to move forward with one specific proposal, they'll really need to act sooner rather than later.
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A heads-up is needed for a big Social Security change
One proposal that's gained a lot of traction for preventing Social Security cuts is raising full retirement age, which is when seniors are entitled to their full monthly benefit based on their respective wage histories. Right now, full retirement age is 67 for anyone born in 1960 or later. Lawmakers have proposed pushing that age back to 68 or 69.
Doing so might help shore up Social Security's finances to a large degree. It's also easy to argue that either 68 or 69 is a reasonable age for retirement given the way U.S. life expectancies have increased.
Here's the problem, though. If lawmakers are going to move forward with this major change to Social Security, they can't just decide to do so at the last minute.
For people who were born in the 1980s or 1990s, there's time before they can contemplate signing up for Social Security, since the earliest age to file is 62. But for people who were born in the 1960s, Social Security may be right around the corner. And it wouldn't be fair to spring a new full retirement age on those people when they're right on the cusp of filing for benefits.
As such, if lawmakers are going to make changes to Social Security's full retirement age, they'd better do so quickly. There's only about a 10-year window before the program's trust funds are depleted. But more so than that, someone born in 1960 is set to reach full retirement age in four years as of now. So people in that situation would need a reasonable heads-up to potentially make changes to their retirement plans.
Of course, lawmakers could opt to move forward with a different solution to pump more money into Social Security and prevent benefit cuts. But either way, it's really best that they act quickly given that the clock is ticking down toward 2034.
Other options for preventing benefit cuts could include increasing the amount of Social Security tax workers pay each year, or taxing higher levels of income. Those changes may not require the same heads-up as a change to full retirement age, but it's still best for lawmakers to come to a consensus in the near term.
