Each year, the Social Security Trustees issue a report on the state of the program’s finances. This year’s report was not exactly full of positive news.
In fact, the trustees recently reported that the combined Social Security trust funds are expected to run out of money by 2034. are scheduled to receive.
Since many retirees today get most of their income from Social Security, benefits can be catastrophic. And so lawmakers are invested in finding ways to prevent that from happening.
But to avoid benefit cuts, Social Security will have to undergo some major adjustments. Here are some possible changes that can come from the pike.
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1. Employees can pay a higher tax rate on their income
Currently, employees pay a tax rate of 12.4% on their Social Security income. Those who are employed pay 6.2% themselves, while their employers collect the remaining 6.2%. Meanwhile, the self-employed are responsible for the full 12.4%.
To pump more money into Social Security, lawmakers may vote to raise that tax rate from 12.4% to a higher number. That would mean that more money would be lost in taxes up front, but potentially prevent benefits from being reduced later.
2. The wage cap can be lifted
Employees don’t necessarily pay Social Security taxes on all of their earnings. Each year there is a wage cap that applies to those taxes, and income after that point is exempt.
At the moment, the wage cap stands at $142,800. It is very likely to rise in 2022 as it typically increases from year to year.
But a modest increase is not enough to prevent social security cuts. And so we could see the pay cap go up significantly instead of going up about $5,000 like it did from 2020 to 2021.
Another option lawmakers could consider is to lift the wage cap altogether. In that scenario, employees would pay Social Security on all of their income.
3. Seniors can be put to the test
Right now, Social Security eligibility is not limited to those who need the money. Retirees of millionaires can also receive benefits after they deposit into the system during their working years.
But one option lawmakers have played with is to test seniors and reduce or eliminate benefits for the wealthy. That, in turn, could prevent seniors who need their benefits from losing some of them.
Of all these options, testing is probably the least likely. Social Security has always been billed as a benefit to everyone, and changing that aspect of the program makes it the core. But it is an idea that has been thrown around.
What’s in store for Social Security?
At this point, we don’t know what lawmakers will eventually do to solve Social Security’s financial problems. But given the number of seniors at risk of falling below the poverty line following a cut in benefits, we need to brace ourselves for some kind of change in the current system. Whether it’s painful for employees to absorb has yet to be determined.
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