If you’re looking forward to collecting Social Security in retirement, there’s some potentially bad news you need to be aware of. Social Security is currently at risk of having to cut benefits because of an impending financial shortfall.
The problem is that Social Security relies primarily on payroll taxes to meet its financial obligations. But in the coming years, that revenue source is expected to shrink as baby boomers wrap up their careers and exit the labor force in masses.
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Not only will baby boomers stop paying into Social Security in short order, but they’ll also inevitably start claiming benefits. That’s going to put a strain on Social Security, leaving the program with no choice but to tap its trust funds for money. It also means that benefit cuts are a strong possibility once those trust funds dry up.
That’s not a desirable outcome, though. Lawmakers are aware that Social Security cuts could push many older Americans into poverty. So they’re invested in avoiding them if possible. But one potential solution for avoiding Social Security cuts could have harsh consequences for working Americans today.
Will you be forced to work longer?
Many people work until they’re able to collect Social Security without a reduction, otherwise known as full retirement age. Full retirement age is 67 if you were born in 1960 or later.
What some lawmakers have suggested as a means of addressing Social Security’s fiscal woes is pushing full retirement age back to 68 or 69. The logic is that since Americans are living longer, making them wait longer to get their benefits in full isn’t unreasonable.
It’s also not a change that’s unprecedented. Full retirement age was 66 for people born between 1943 and 1954. So it wouldn’t be totally out of line to phase in a new full retirement age for workers today. But that’s a change that could force many people into a later retirement than they want, since a lot of workers lack savings and can’t afford to have their Social Security benefits reduced.
Keep tabs on Social Security
If lawmakers decide to make changes to full retirement age, they would likely impact younger workers more so than near-retirees. It just wouldn’t be fair to drop a bombshell like that on workers who are already in their 60s and on the cusp of wrapping up their careers.
This isn’t to say that lawmakers are absolutely going to raise full retirement age for younger workers. There are other options they can look at to get Social Security to a better place financially. But it’s an option workers should keep on their radar.
What can you do about this? Well, you can’t necessarily prevent lawmakers from implementing a change you don’t approve of. But you can do your part to boost your retirement savings so that if this change does come about and you don’t want to work longer than you initially planned, you’ll have a savings cushion to soften the blow of a reduction in benefits.
Furthermore, if lawmakers don’t make this change, and Social Security does end up being cut, you might need more savings to compensate for reduced benefits anyway. So a larger 401(k) or IRA balance is never a bad thing to have.
