Social Security is a very important financial resource for many retired Americans. This has continued to provide a source of income for people all over the country for the past several decades. While Social Security has been a good resource for retirees, there is a heightened risk that it could run out in the future. This is due to a variety of factors, including an aging population, expanded life expectancy, and an increased cost of living.
Due to the risk of Social Security running out, Financial Planner Darcy Bergen recommends that everyone know what could happen. There are a variety of situations that could occur if this benefit continues to be depleted.
Delay in Retirement Benefits
Financial planning professionals expect that there will be a delay in when retirement benefits can be taken. Today, the full retirement age is considered to be 67 years of age. However, you can start to take Social Security as early as 62 years of age, but your annual benefits paid out will be reduced. One of the ways that the funding for Social Security can be extended is by delaying the retirement age. People should not be surprised if the full retirement age is pushed back to 68, or even 70, in the coming years.
Another risk that Darcy Bergen sees in the future is a reduction in benefits. If delaying when Social Security can be taken does not work, there is a chance that the amount of money someone earns can be dropped as well. In recent years, higher inflation has led to larger COLA adjustments in Social Security. If inflation continues to stay 5% or higher, it can put a large strain on the overall system. Due to this, there is a chance that annual increases will not keep up with inflation.
Another way that benefits can be reduced is if a means test is applied. Social Security is paid out to individuals based on how much they paid into the system over the years. However, the way funds are paid out could change based on the means of each individual. This means that if someone has ample financial resources in 401ks, pensions, and other retirement accounts, they may not qualify for the additional Social Security income. A reduction in benefits could end up being a significant challenge for many retirees.
Another situation that is expected to see in the future is an increase in taxation and payroll deductions for FICA. Today, most wage earners will pay 6.2% of their annual salary into the Social Security fund. However, this is limited to the first $160,200 that someone earns in a given year. It is expected that this tax will increase in the coming years for wealthy individuals. Either the percentage taken out will increase, or the maximum earnings limit will be increased. While doing this could increase funding for the plan, it will impact some people’s ability to save on their own.
One of the most significant concerns that people have today is the prospect that Social Security benefits could be depleted or lost altogether in the future. If this does occur, there are a variety of situations that could arise that can impact your financial and personal plans. Darcy Bergen has continued to be an accomplished personal financial advisor who recommends that you start taking the steps now to prepare for this inevitability and to ensure you are prepared to retire when the time comes.