One of the most worrying headlines about retirement in the United States is this Social benefits can be reduced from 2034 onwards due to lack of funds. For retirees who are heavily dependent on social security income to make ends meet, the prospect of smaller checks each month is more than a little problematic.
AARP addressed this issue in a lengthy report this week. The report noted that not only is social security the largest source of income for most retirees, but the program has also never missed a monthly payment since it cut its first check in 1940.
Lately, however, people have become concerned about social security as a large influx of new baby boomer retirees depletes the current trust fund. A 2020 AARP survey found that 57% of Americans are unsure of the future of the program – despite widespread public support.
“It is crystal clear that Americans of all generations value the economic stability that Social Security has offered for the past 86 years – even more so as we face the health and economic challenges of a global pandemic,” said Nancy LeaMond, AARP executive vice president and chief. advocacy and engagement officer. ,
But if lawmakers do nothing to help support social security, it will be dry in 12 years, AARP noted. At that time, its only funding would come from current tax revenues, which would cover only 78% of the promised benefits.
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So what to do about it? In its report, the AARP listed nine ways to save social security. Here’s a quick look:
.Increase payroll tax rates. .An increase in the rate from the current 12.4% to something closer to 14.4% could add billions of dollars in additional funding each year, although an increase would be hardest felt by low-wage earners and the self-employed.
Expand the bottom. Some state and local workers are taxed on public pensions instead of social security. Bringing them all into the SSA would create a huge new influx of cash. .
Expand the definition of “income”. Some forms of income are not subject to social security administration payroll taxes, such as the value of an employer-sponsored group health insurance. Gradual elimination of these exclusions – and the collection of payroll taxes on the extra income – would support the social security funds for about four extra years.
Increase the SSA tax on higher incomes. This approach requires adjusting the size of social security payments based on a person’s salary, wealth or income.
Cut benefits for new recipients. Under this plan, new qualified retirees will be paid a little less per month than promised. By cutting payments to new retirees by 3%, you can extend the life of trust funds by 10 years, according to a 2005 study by SSA.
Reduce the cost of living adjustment (COLA). .Each year, the SSA adjusts recipient payments to account for inflation, based on the government’s consumer price index for urban and office workers (CPI-W). Some have suggested switching to different inflation targets or simply reducing COLA, but this is not a popular idea because of the economic impact it would have on the beneficiaries. .
Change benefit calculations. , SSA uses your maximum 35 year salary history to determine your retirement benefit. Using a higher number of years, such as 38 or 40, would reduce a beneficiary’s average annual earnings and the size of their monthly benefit, which would help the trust fund last longer.
Raise the retirement age. .You can start taking social security at the age of 62, however, with lower benefits than if you waited until you got older. A gradual increase in the age limits would ease some of the strain on the trust funds.
Conversion Social Security to another program. Among the suggestions here is to change it to individual chart of accounts corresponding to one 401 (k), where workers contribute some or all of their payroll taxes to a self-managed pension account invested in stocks, bonds and other securities. This has support in some circles, but many Americans are against such a plan.
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This article was originally published on GOBankingRates.com: Social security: AARP drops truth bomb on system instability, suggests 9 ways to save it