Millions of seniors today collect a monthly benefit from Social Security. And for many, it would be impossible to pay the bills without that money.
But Social Security's rules might need to change in the coming years to ensure that the program is able to keep up with scheduled benefits. Social Security is facing a funding shortfall that lawmakers need to address by making adjustments to the way the program works in one shape or form. Here are a few potential Social Security changes to gear up for that may not seem so wonderful at first.
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1. A new full retirement age
Full retirement age (FRA) is when you can claim your complete Social Security benefit based on your earnings history. If you were born in 1960 or later, FRA is 67. But because the program desperately needs to conserve funds, lawmakers are considering pushing FRA back to 68 or 69.
Now this would likely come in the form of a phased adjustment to FRA. It's unlikely that lawmakers will decide that everyone born in 1960 or after suddenly can't claim their full benefits until a later age. Rather, that change would likely apply to younger workers, while those nearing FRA at present would likely get to stick to 67. But still, this is a change that could impact a lot of people's retirement plans.
2. A higher tax rate on Social Security
Workers are required to fork over a chunk of their income to fund Social Security. Right now, 12.4% of wages up to a certain limit that changes every year are taxable. And thankfully, salaried employees split that 12.4% evenly with their employers so they're not paying that whole sum.
But lawmakers may decide to raise that 12.4% tax rate for Social Security. That would easily do the trick of getting the program more robust funding. Of course, it would also result in workers losing a larger chunk of their income -- and also put more of a burden on companies that might, in turn, pass that cost onto consumers via higher prices for their products and services.
3. A new set of criteria for giving out Social Security benefits
Social Security is not a welfare program, so seniors who have millions of dollars to their name can receive a monthly benefit in retirement. But that could potentially change. Another proposal that's been floated to help boost Social Security's revenue is to means test seniors and reduce or even eliminate benefits for those who are higher earners.
Now of the three changes mentioned here, this one is the least likely to become reality. Denying wealthy retirees their Social Security benefits would pretty much change the scope and intent of the program, and that's probably not something lawmakers would actually want to do. But desperate times could call for desperate measures.
Some steps need to be taken to ensure that Social Security is able to continue paying benefits in full through the years. And these proposals aren't the only ones on the table. But they do have the potential to come to life, and that's something workers today need to understand. And while all of these changes might seem less than desirable, do keep in mind that a universal reduction in Social Security benefits also isn't wonderful -- so it may be a matter of the lesser of two evils.
