The Social Security Administration (SSA) has predicted for years that it will be forced to reduce Social Security benefits because of a growing funding shortfall. The agency is expected to reduce the benefits sometime after 2033 unless Congress makes some changes. At least one of the proposed changes is to raise the retirement age at which a retiree can receive full Social Security benefits.
The need to make changes to Social Security, CNBC says, is because the agency has revealed that it will only be able to pay about 80 percent of the regular Social Security payments by 2034. Because so many people depend on that retirement monthly income, it would be disastrous for retirees and those planning on retiring soon.
Right now, anyone retiring can expect full benefits only if they retire at age 67 and a few months. The proposed change, which some Republicans have suggested, is to raise the retirement age to 70 when they can apply for Social Security and get full benefits.
Although other proposals were presented, it is debated in Congress whether it is the best move—or even a good one. Raising the Social Security retirement age could help solve Social Security’s financial problems, but it would hurt many low-income people.
The Reasons for a Shortage of Funds for the SSA
There are two major reasons why Social Security is having difficulty financially. The first is that people are living longer. Back in 1983, when the full retirement age was first raised, Americans lived an average of 74.37 years, but the average lifespan now is 79.25 years.A second reason is that there are not enough working young people to prevent the future shortage. It is caused by women not having as many children as they did in past years.
Potential Problems Are Not Fully Predictable
Although nothing has been agreed upon yet in Congress, it is unlikely to affect retirees. Most likely, it also will not affect those close to retirement age, widows, or disabled, who already receive benefits.There is no way to predict all potential problems that might be caused by changing the retirement age. Some of the possible complications include:
1) A Loss of Benefits
Retiring later will mean that many people, particularly the poor and minorities, will receive fewer benefits because they do not live as long as other groups. These groups often have more health problems earlier than others, which could force them into early retirement—and Social Security benefits may not be available for them.
The Center on Budget and Policy Priorities says the poor and minorities have not experienced the longer lifespan that other groups have enjoyed in recent years. Other groups are living longer, but not those in the lower-income classes. It is true even when factoring in the effects of Covid.
2) Working Longer Would Be Necessary
Instead of retiring with full Social Security benefits at 67, many employees would have to work until they reach 70. Many would be unable to do so because of health problems that could take them out of the workforce.It is also probable that the age to get early Social Security benefits—currently 62—would also be moved. Money.USNews mentions that if it is raised to age 65, many people would likely die before being eligible. Assuming good health, they would have to wait three more years to be able to claim early benefits, which still means they would receive 30 percent less than if they waited until full retirement age.
3) Social Security Would Not Be Paying for Medicare
Whether or not the age of Medicare eligibility will also be changed does not appear to be an issue right now, although it is possible. However, with poorer health and the need that many will have for early retirement, people with lower incomes may not be able to afford Medicare benefits if full Social Security payments do not start until age 70. They would, however, still be required to buy it at age 65 if they had stopped working.Taking Social Security before reaching full retirement age, which is possible, means getting reduced benefits. There is a possibility that the Medicare starting age, which is currently 65, will also have to be changed. Right now, it is mandatory to enroll around your 65th birthday unless you are still working.
4) Other Retirement Income May Be Necessary
Because of the higher cost of living and inflation, many people may need to start drawing on other retirement accounts such as IRAs or 401(k)s. Instead of waiting until 73 to begin taking required minimum distributions (RMDs), they could get withdrawals, which would reduce their taxes later when RMDs become necessary.Withdrawing some of the money from a large retirement account could prevent you from being placed into a higher tax bracket in retirement. It also may prevent you from paying higher Medicare premiums since they are based on your income.
5) Maximum Benefits May No Longer Apply at 70
Right now, you can get the maximum Social Security benefits if you wait until 70 to begin receiving them. When, and if, the maximum benefits will still be available for those retiring at 70, it will likely cause confusion unless it also is moved to a later age.Since this is an election year, it is doubtful if changes to Social Security are made before a new president is elected. Most likely, candidates will make campaign promises concerning Social Security because it will affect so many people.
You can learn how to be better prepared for retirement by talking to a financial advisor about retirement income planning. Avoid waiting until you are near retirement age to learn more.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
