Social Security has been in the news lately. And unfortunately, it hasn't been for a good reason.
The Social Security Trustees recently released their much-awaited report. And in it, they shared a pretty lousy update.
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In a nutshell, the program's combined trust funds are set to run out of money by 2034. And the depletion of the Social Security trust funds could set the stage for broad benefit cuts.
That's clearly far from ideal. And it's a situation that lawmakers need to address immediately. But unfortunately, the solutions to the problem could end up being worse than benefit cuts themselves.
Why lawmakers are invested in preventing Social Security cuts
Social Security has faced benefit cuts in the past. Each time, lawmakers have managed to find a way to prevent them. Therefore, there's a good chance benefit cuts will be avoidable this time around, too.
The reality is that many retirees rely on Social Security to provide all or most of their income. If benefits were to be cut, countless seniors would then need other types of government assistance to stay afloat.
Lawmakers do not want a senior poverty crisis on their hands. And if they don't prevent Social Security cuts, they're going to have to pick up the pieces elsewhere.
Why the solutions to prevent Social Security cuts aren't great
Lawmakers have been working on different ways to prevent Social Security cuts. But unfortunately, each potential fix comes with a major and very obvious drawback.
One option is to raise the Social Security tax rate. It's currently 12.4%, split evenly between employers and employees.
Raising that tax rate could easily result in an uptick in revenue for Social Security. But it would also burden working Americans with higher taxes. The same would hold true for employers, which could lead to price hikes that hurt consumers, as well as an uptick in unemployment to conserve costs (which, incidentally, hurts Social Security, because the fewer workers there are, the less revenue the program takes in).
There's also the possibility of raising full retirement age, which is when older Americans can collect their monthly Social Security benefits without a reduction. Right now, full retirement age is 67 for anyone born in 1960 or later. Pushing that age out to 69 could help Social Security conserve resources and potentially avoid having to cut benefits.
However, that solution introduces a problem because as it is, many older people struggle to work until 67. Forcing them to work two extra years could mean subjecting a lot of folks to health issues, not to mention denying them the slightly earlier retirement they deserve.
Plus, it's not a given that everyone who wants to work until full retirement age gets to. Employers are notorious for pushing older workers out of their jobs and getting away with it. Raising the full retirement age only makes it that much harder for eligible recipients to get their Social Security checks in full.
All told, there's a good chance that lawmakers will find a way to prevent Social Security cuts. But whether the solutions are good for the public is a different story. Unfortunately, this is shaping up to be one of those lose-lose situations, no matter how you look at it.
