
A fight over Social Security is brewing between Joe Biden and Donald Trump. Now that both presidential candidates have clinched their nominations, we’re likely to hear more proposals to fix the program—raising fresh questions about whether future retirees can count on their full benefits.
In his proposed budget for fiscal year 2025, President Biden pledged to “protect and strengthen Social Security.” He also vowed to protect the program from the “chopping block” in his State of the Union speech. Biden didn’t reveal specific proposals but in the past has supported tax hikes on people earning over $400,000 to help ensure the program’s solvency and prevent benefit cuts.
Former President Trump, meanwhile, raised the possibility of “cutting” entitlements in a recent media interview. The Trump campaign later said he would protect Social Security and Medicare, which are both considered entitlement programs, with workers paying payroll taxes that partially fund them.
While both sides were short on specifics, Social Security is in dire need of a fix to restore its solvency. Barring congressional action, the Social Security trustees project that the retirement trust fund will run dry in 2033. The fund makes up the difference between the amount promised to beneficiaries and the amount collected via payroll taxes. (Social Security is run on a “pay go” basis, with current workers paying for current retirees.) If the fund runs out of money, payroll taxes would cover only a projected 77% of scheduled benefits. Put another way, beneficiaries would face an immediate benefit cut of 23% if Congress fails to act.
Social Security isn’t going away. And targeting benefits for current recipients would be politically disastrous for any politician—why Social Security is often called the “third rail” of U.S. politics.
What’s more, changes will most likely exempt people who are close to retirement. Lawmakers won’t want to pull the rug out from under people who have been counting on a certain level of benefits and who have less time to change course in response to congressional action.
Instead, many experts predict that lawmakers will find a solution through some combination of tax increases and benefit cuts for younger generations.
Experts that Barron’s consulted put the dividing line for potential benefit cuts at about 45 or 50 years of age: Anyone younger than that now has a greater chance of benefit reductions, while those on the older side should receive their benefits as currently scheduled. To check your projected future benefits, you can create a “my Social Security account” profile on the Social Security Administration website.
Absent specific proposals, it’s hard to say what any cuts to Social Security might look like. One proposal that has been floated—recently by former Republican presidential candidate Nikki Haley—is increasing the full retirement age, or the age at which you can receive the full benefits to which you’re entitled. It’s currently 67 for anyone born in 1960 or after.
Social Security isn’t going away. And targeting benefits for current recipients would be politically disastrous for any politician—why Social Security is often called the “third rail” of U.S. politics.
Raising the retirement age is like a stealth benefit cut. Each one-year increase in the full retirement age is equivalent to a roughly 7% cut in monthly benefits for retirees, according to the Center on Budget and Policy Priorities. As such, it’s possible that younger workers will have to work longer to receive the full benefits they’re promised.
One thing that people shouldn’t do: claim benefits earlier because they worry that Social Security is going away. The longer you wait to claim until age 70, the more you receive in benefits. Even in the worst-case scenario, a 20% cut to a higher benefit leaves more in your pocket than the same percentage cut to a lower benefit, says Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021.