The president has pledged his support for the program, but it may come at a hidden cost.
Millions of seniors today collect a monthly benefit from Social Security. And without that income, many would no doubt struggle to cover their essential expenses.
But Social Security is facing some financial challenges that may result in benefit cuts as early as 2035. That’s the date at which the program’s combined trust funds are expected to run dry, according to the latest Trustees Report.
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Come 2035, Social Security recipients could see their benefits shrink by 17% if lawmakers don’t manage to arrive at a solution that avoids that. But thankfully, President Biden has made it clear that he supports strengthening Social Security. The path to getting there, however, many not sit so well with workers today.
Unwavering support
Biden has long been a vocal supporter of Social Security. And following the latest Trustees Report, he issued a statement saying, “As long as I am President, I will keep strengthening Social Security and Medicare and protecting them from Republicans’ attempts to cut benefits Americans have earned.”
Biden also said, “I am committed to extending Social Security solvency by asking the highest-income Americans to pay their fair share without cutting benefits or privatizing Social Security.” However, his solution may not be feasible, as it would require a major overhaul to the tax code as we know it today.
As such, Biden may need to get on board with another solution that’s been suggested to prevent Social Security — making changes to full retirement age (FRA). But if that route proves most effective in avoiding Social Security cuts, it could still leave a lot of people in a serious bind.
Will you be forced to delay your retirement?
FRA is when Social Security recipients are entitled to their complete monthly benefit without a reduction. It hinges on year of birth and is 67 for anyone born in 1960 or later. Lawmakers have suggested that raising FRA for younger workers, and phasing that change in gradually, could help preserve revenue for Social Security and help avoid benefit cuts.
To be clear, this proposal is one that Republicans are calling for. Biden himself is not necessarily a fan.
But logistically, it may be the most effective way to strengthen Social Security without having to make massive tax changes or burden workers with additional taxes. Of course, Biden’s solution to strengthening Social Security — raising taxes on the wealthy — would not impact the average wage earner. But other tax-related proposals might.
Some lawmakers have suggested raising the tax rate for Social Security, which currently sits at 12.4% and is split evenly between employers and employees. Raising that tax rate universally could cause an undue hardship for average earners, who are still struggling to make ends meet in the wake of stubbornly sticky inflation.
Raising FRA reads like a less problematic solution because it shouldn’t put an undue financial burden on workers in the near term. Rather, it’s longer-term plans — retirement — that may be impacted.
Prepare for changes to FRA, just in case
A raised FRA could have strong repercussions. It could force millions of older workers to extend their careers — whether they want to or not. And it could put workers who are forced to retire early due to factors like layoffs and health issues in a serious financial bind.
But the reality is that workers today need to recognize that getting their complete Social Security benefits at age 67 may not be a given. And as such, retirement plans should be adjusted accordingly.
For many, this could mean boosting savings in the event that circumstances force a retirement before FRA — whatever age that turns out to be. It could also mean embracing a career pivot that makes the idea of working longer more palatable.
It’s encouraging to see such staunch support for Social Security on President Biden’s part. But even he may need to accept the fact that the best way to avoid benefit cuts may be to force workers to wait a bit longer to collect the money they’re entitled to.