To Save Social Security, Americans Must Accept These Two Changes

You may have heard the rumor that Social Security is about to go broke. And thankfully, that’s all it is — a rumor.

Social Security can’t go broke because it gets funded by payroll taxes. So as long as there’s an active labor force, Social Security won’t disappear.

However, Social Security is facing a major financial shortfall in the coming years as baby boomers are expected to retire in droves. An inadequate number of replacement workers will leave the program with a funding gap.

Social Security can tap its trust funds to keep up with scheduled benefits for a while. But once those trust funds run dry, Social Security may have to cut benefits due to insufficient funding.

That would be a pretty terrible thing given the number of older Americans today who get most or all of their income out of the program. In fact, it’s probably fair to say that senior poverty levels would soar in the wake of sweeping benefit cuts.

Thankfully, though, lawmakers have a few solutions at their disposal to prevent Social Security cuts. But those solutions come with serious downsides.

Still, Americans may have to get on board with certain changes to prevent Social Security cuts. Here are two possibilities to brace for.

1. A change to full retirement age

Full retirement age (FRA) is when people can claim Social Security without a reduction. If you were born in 1960 or later, your FRA is 67.

One thing lawmakers could do to strengthen Social Security is push FRA back a couple of years and slowly phase in that change over time. That could mean that some younger workers wouldn’t get their full monthly benefits until 68, 69, or possibly beyond.

Clearly, this is not a great thing. But it may be a more reasonable thing than sitting back and let Social Security get cut.

2. A change in how wages are taxed

Workers pay into Social Security at a rate of 12.4% on a certain amount of wages. Another way to pump more revenue into Social Security is to raise that rate of tax.

The downside here is obvious — burdening working Americans with more taxes. But the upside is that a higher rate of tax may be enough to prevent Social Security cuts.

Of course, the program could also do away with its wage cap, which currently sits at $176,100 and changes every year. Forcing workers to pay into Social Security on all of their income, no matter how high, would likely be pretty effective.

But that, too, introduces a problem.

Social Security has a maximum monthly benefit that’s based on the program having a wage cap. If the program does away with capping benefits, it could negate the upside of collecting more tax. If it collects more tax from higher earners but doesn’t raise the maximum benefit, that reads like a pretty unfair deal for workers with higher incomes.

So all told, lawmakers have some tough choices ahead of them. But one thing’s for sure — something has to be done to save Social Security, even if Americans aren’t totally thrilled with the results.

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