There are rumors going around that Social Security is at risk of going broke, and that benefits won't be available to today's workers in retirement. But those rumors simply aren't true.
Social Security is facing a funding shortfall it will need to address in the coming years. But that doesn't mean the program is going to disappear completely.
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That said, Social Security may need to cut benefits in about a decade due to shrinking revenue. The program gets primarily funded by payroll taxes, but that revenue stream is expected to decline as baby boomers retire in droves.
Social Security can tap its trust funds for a period of time to keep up with scheduled benefits, even if it's taking in less payroll tax revenue. But once the program's trust funds run out of money, which could happen in about a decade from now, current recipients could face benefit cuts. And future recipients may not get all the money they're entitled to.
There's a solution to address Social Security's financial woes...
Lawmakers know they'll have a major poverty crisis on their hands among the elderly if they allow Social Security benefits to get cut. So they've been working on different solutions to prevent that.
One solution that's been floated is pushing back full retirement age, which is the age at which workers can claim their monthly benefits in full. Seniors are allowed to claim Social Security as early as age 62. But failing to wait until full retirement age means recipients lock in smaller monthly paychecks for life.
Right now, full retirement age is 67 for anyone born in 1960 or later. To help address Social Security's funding shortfall, some lawmakers have suggested pushing full retirement age back a few years -- to 68, 69, or possibly even 70.
The logic is that with life expectancies increasing, giving older Americans access to their full monthly benefits a couple of years later still allows them to enjoy a fairly lengthy retirement. At the same time, Social Security gets to conserve resources. So some might regard it as a win-win.
...but it's not a great solution
Pushing back full retirement age might help Social Security's finances to some degree. But workers today are unlikely to be happy with this fix.
Many workers can't afford to retire without their monthly Social Security checks. And many can't afford a reduction in their monthly benefits because they lack savings or other retirement income streams. So what this change could do is effectively force a lot of people to work longer, which many may not want.
There's also the issue of older workers being forced out of their jobs sooner than they wanted due to their age. For some, it can be hard enough hanging on until age 67. Moving full retirement age back a few years could effectively leave some recipients no choice but to claim Social Security early -- and reduce their benefits -- in the absence of being able to remain employed.
All told, making changes to full retirement age is a potential solution to Social Security's financial woes. But it's important that lawmakers recognize the pitfalls of this plan -- and that they take steps to phase it in over time so that workers get plenty of notice to pivot accordingly.
