A new study from Health View Services, a company that provides retirement health care data to financial advisors, says that couples could lose up to $908,000 in lifetime Social Security benefits if Congress does not fix the program’s funding problems.
The study looked at different possible reforms to Social Security and estimated how much they would cost future retirees. Researchers came to the conclusion that if Congress does not do anything, it will have very bad financial effects.
Doing nothing is the worst thing that could happen. Without action, seniors may see a 21% drop in their benefits within the next ten years. For example, a couple who retires in 25 years could lose a total of $908,482 in Social Security benefits over their lives.
This estimate was based on a made-up pair whose current income is $175,000 a year and whose husband is 40 years old and their wife is 38.
The math says that the husband will start collecting retirement benefits at age 65 and the wife will do the same at age 63. Both of them will live to be 86 and 90 years old, respectively.
People who are close to retirement age could also be affected by the possible cut in Social Security payments. It would not just affect one group of people.
The study says that a couple with an average income and only 10 years left until retirement could lose $252,000 in benefits.
Even though lawmakers have not done anything about the lack of funding yet, experts say that Congress will finally look at reforms that include both ways to cut costs and bring in more money.
But every possible answer has its flaws, and most of the time, they only offer partial relief.
Some of the proposed Social Security stopgaps
One change idea that has been thought about is raising the full retirement age from 67 to 68 over time. Health View Services says that this change would cost the fictional retiring couple $324,667 in lifetime benefits if it were to happen.
Taking away 0.5% from the yearly cost-of-living adjustment (COLA) is another option. This could mean that the same couple gets $287,351 less in lifetime benefits.
In a news release, Ron Mastrogiovanni, CEO of Health View Services, said, “Congress will have to make hard choices that will either cut benefits or raise taxes to pay for the program. Either way, it will cost future retirees a lot.”
Taking away the limit on how much high-income people can earn that is taxed is another option. The Social Security payroll tax rate right now is 6.2%, and it only applies to incomes up to $168,600.
Some Democratic lawmakers want to get rid of this cap in order to bring in more money, and new polls show that a lot of people agree with them.
The couple in the report, on the other hand, would not be affected by this change because their income is below the suggested level for high earners.
The study says that if the cap were lifted, a couple making $500,000 a year would be able to contribute $252,340 more before taxes over 25 years.
The study made it clear that the shortfall in funding for Social Security can only be fixed by either higher contributions or lower benefits, even if something is done right away.
The report said, “The numbers show that Americans will either have to pay more into or get less from Social Security, even if changes are made right away.”
Also, if the funding problems are not fixed soon, the costs of doing so will go up, which makes it more likely that benefits will be cut even more severely.
Payroll taxes are the main source of money for Social Security. If nothing is done to fix the problem, the program will likely have more and more money problems.
In the end, lawmakers are likely to look at a number of different ways to keep Social Security solvent by both bringing in more money and keeping costs down.
Still, each of these options has big downsides for people who will be retiring in the future. This is why it is so important for lawmakers to carefully consider all the possible outcomes of their choices.
