New York Estate Planning & Elder Law Blog
Social Security is facing a funding shortfall, that if left unaddressed, could result in a major reduction across the board, in the retirement benefits millions of retired workers receive. If a cut in benefits were to happen, many seniors would not be able to cover their living expenses. Others would be pushed into poverty, particularly if they suffer from chronic conditions that would make it impossible for seniors to work, even on a part-time basis to cover the loss of benefits. Future retirees would also have to work longer than planned, should the retirement age for eligibility for the Social Security program change, because of the funding shortfall.
A proposal was introduced in Congress by U.S. Senator Mitt Romney from Utah, to raise the full retirement age at which seniors can collect their monthly benefits in full. Raising the Social Security’s program retirement age for program eligibility was last done over 35 years ago. Legislation effective in 1983, pushed Social Security’s former full retirement age of 65 up to a range of 66 through 67, depending on year of birth. Today, seniors can take benefits as early as age 62. However, each month claimed before full retirement age reduces the benefit paid on a lifelong basis.
Proponents of raising Social Security’s full retirement age say it’s a reasonable thing to do given increased life expectancy. Opponents argue that it won’t solve the problem. Raising Social Security’s retirement age would be unfair to many seniors they argue.
According to the latest Trustee’s Report, Social Security is looking at a revenue shortfall that could result in a reduction of benefits as early as 2035. Romney’s proposal, at best, presents a gradual solution to lessen the impact of a dramatic reduction in benefits.
Another proposal gaining momentum is to raise the payroll tax cap. Currently, workers only pay Social Security taxes on their first $132,900 earned. In 2020, the Social Security Cap will increase to $137,700. This coming year’s increase is a $4,800 increase over 2019. This increase impacts the self-employed, employees and their employers, who have to increase their share of the Social Security tax as part of their employees’ earnings.
While the Social Security tax burden appears to hit the self-employed harder than employees, the reality is that employers have to think of their share of the Social Security tax as part of employees’ earnings, which either increases their labor cost or requires them to lower the amount they pay out in salaries or wages.
Raising the full retirement age does not solve the Social Security program’s funding shortfall. At best, Romney’s proposal and raising the payroll tax cap are temporary fixes that would result in an uptick in revenue but not address the program’s inability to maintain funding.