You're not alone if you're worried about running out of money in retirement. You do what you can to save on your own, but it's tough to know whether you've set aside enough. Social Security's looming insolvency doesn't help, either.
We're now less than a decade from a 24% benefit cut, according to the Committee for a Responsible Federal Budget. There's still time for the government to step in and reform the program to avoid this, and "everything's being considered," according to Social Security Commissioner Frank Bisignano in a recent interview.
While it might be comforting to know that Washington isn't going to allow seniors to lose a quarter of their checks overnight, the lack of a concrete plan leaves the future for workers and retirees uncertain. One thing people do know is that some of them are going to have to foot a pretty big bill before the decade is out.
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Why Social Security's running out of money
Social Security has been spending more money than it's been taking in since 2021, which is largely due to changing demographics. The generations that followed the now-retiring baby boomers are smaller, leaving fewer workers paying Social Security taxes to fund the benefits of a growing number of seniors.
So far, the program has managed to keep benefits going out as scheduled by dipping into the program's trust funds. But those are scheduled to run out in about 2033, according to the latest Social Security Trustees' Report. That could lead to a benefit cut if the government doesn't step in.
The good news is there are a lot of different ways the government could resolve Social Security's funding shortfall. The bad news is they all cost money and someone has to pay. Who and how much will depend on what the government ultimately decides.
What options are on the table?
Commissioner Bisignano raised two of the many possibilities during his recent interview. One was increasing the taxable wage base, which is the amount of income people pay Social Security taxes on each year. Currently, this is capped at $176,100 but increases a little each year.
This is a popular strategy among ordinary Americans because the extra burden would largely fall upon wealthier Americans, and they may be able to better shoulder the extra costs. However, this would only eliminate about half the projected funding shortfall, at most.
In the interview, Bisignano also floated the idea of raising the full retirement age (FRA). This is the age at which you would become eligible for your full benefits based on your work history. It's 67 for most people today, though it was lower in the past.
You can claim benefits if you're younger than your FRA, but this will reduce your checks by up to 30%. Raising the FRA would effectively act as a benefit cut for younger workers, which makes it an unpopular solution with many Americans.
Shortly after Bisignano's interview, the Social Security Administration took to social media to say that "Raising the retirement age is not under consideration." However, alternatives to this plan could still be tough on workers.
If the government decides to raise the Social Security payroll tax rate, workers could take home less money each pay period. This could also make it challenging for them to save for retirement on their own, making them more dependent on their benefit checks.
What you can do
It'll be up to Congress to decide any changes to Social Security. You can share your feelings with your Congressional representatives through letters or emails. But ultimately, everyone will just have to wait and see.
In the meantime, do your best to prioritize your own retirement savings. The more you can set aside now, the less you'll be affected by any potential cuts to Social Security. Once the government does announce a plan, it'll be time to review your retirement savings strategy to see if you need to make any changes.
