Depending on the results of next week’s election, a new government will take over the White House early next year. One of the first problems that new government will have to deal with is Social Security. Even though there is an impending funding cliff that could mean benefit cuts in the next ten years, Social Security has been mostly ignored.
This is true even though both of the major party nominees, Democratic Vice President Kamala Harris and Republican former President Donald Trump, ran on a wide range of issues to appeal to voters. Social Security, which is paid for by taxes and trust funds, will cost the US government $1.3 trillion, or 5% of GDP, in 2023. It is by far the biggest direct cost of the annual budget.
Upcoming Social Security changes that beneficiaries should be aware of after the election
Almost 70 million pensioners, disabled people, and living family members of workers who have died get money from it every year. Experts who spoke to Newsweek said that the next government would be smart to fix the problem of the trust funds for the Old Age, Survivors, and Disability Insurance (OASDI) program running out.
The most recent annual report from the Social Security Administration‘s Office of the Inspector General says that benefits could be cut by 21% in 2034 if an answer isn’t found in the next few years. Social Security hasn’t gotten much attention in the current presidential race, even though it’s very important.
While candidates have talked about tax plans like getting rid of payment levies and raising payroll taxes for the highest earners, neither has directly talked about how to fix the country’s impending funding cliff. This is despite the fact that the future of benefits is a big concern for most voters and a big part of their income in retirement.
A nonpartisan public policy think tank called the Committee for a Responsible Federal Budget (CRFB) said in September that if the SSA’s solvency is not fixed, a retired couple with a “medium income” who stops working in 2033 could lose $16,500 from their yearly retirement allowance. Americans depend on Social Security payments for more than 40% of their retirement income on average.
Stephen Kates, lead financial analyst for RetireGuide.com, says that if nothing is done to fix the deficits, the expected 20% cut in payments will make it very hard for many seniors to keep living the way they do now. The SSA has had money problems in the past; the early 1980s were another time when the government organization had a lot of needs.
In 1983, when he was president, Ronald Reagan started changes that were meant to protect the SSA for the next 80 years or so. The Greenspan Commission on Social Security Reform was set up to look into the problems and come up with an answer that would keep the program going for a long time. Its original deadline was 2060, which is more than 80 years from now.
An expert on retiring at PlanPrep in Connecticut, Burt Williamson, told Newsweek that the next president could deal with the problem in a number of different ways. He told them that as soon as they took office, they should write an executive order naming a commissioner to lead a bipartisan group that would look at the situation and come up with workable solutions.
What are the possible solutions for the Social Security system?
Williamson said that getting rid of the payroll tax cap, which is $176,100 in 2025 and $168,600 this year, slowly and steadily would help with money worries. There is a 6.2% income tax on this amount right now, and both employers and employees pay it straight to Social Security.
There is no cap on the last 1.45%, which is used to pay for Medicare. Williamson also said that the suggested changes would have a big effect on the top 6% of wage earners and their employers, making a lot of money, though they might not go over well with people who will have to pay more in payroll taxes.
A longevity account is another way to save for the future by putting up to 10% of future income into it. Williamson made it clear that this would not be privatization, but rather a side project as part of the Social Security trust fund. It could be overseen by a group made up of people from different political parties.
He also said that it shouldn’t be possible for other government accounts to take money from it. The conservative study group behind Project 2025, the Heritage Foundation, suggested that the retirement age be raised as a way to make more money. It’s also possible to raise the 6.2% tax payments to 7%, according to the American Academy of Actuaries.
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