Unless policymakers enact change, retirees are likely to feel the effects of Social Security’s potential insolvency in 2033. A new whitepaper underscores the financial impacts Americans will face if Social Security funding continues to face shortfalls.
The report, “Funding Social Security: Ranking the Cost of Proposed Changes on Americans Planning for Retirement,” by HeathView Services highlights the proposals created to address the programs solvency for both mass affluent and average income Americans who face 25 or 10 years until retirement.
HealthView Services ranks the order of potential changes on how profound each would be for saving benefits for American retirees. According to the whitepaper, if benefits are reduced by 21%—the current Social Security funding expectation—a mass affluent couple 25 years from retirement could risk losing $908,000 in future Social Security benefits. Average income couples with only 10 years from retirement would see a cut in lifetime benefits of $252,000.
The HealthView Services report examines how changes to the current full retirement age (FRA) could significantly lessen losses. If Congress were to push the FRA by one year from age 67 to 68, a mass affluent couple retiring in 25 years would see a total loss of $325,000 in lifetime benefits, while an average income couple for see benefits fall by $249,000. Couples delaying by one year would see their Social Security reduced by $125,000 or $95,000.
Studies have shown that more Americans are counting on Congress to fix Social Security’s funding shortfalls. Research from the National Institute on Retirement Security (NIRS) found that 87% of its respondents want Congress to prioritize funding Social Security benefits now rather than in a decade. Separate research from the Peter G. Peterson foundation reported that while only 30% of its respondents were informed about the impending cuts to Social Security, once they’re aware, 97% call on elected leaders to boost the federal program by proposing actionable solutions.
“This paper provides working Americans, advisors and the financial community cost projection data to understand the ways in which changes to Social Security will affect retirement plans,” said, Ron Mastrogiovanni, CEO of HealthView Services, in a statement. “Congress will have to make hard choices that will reduce benefits or increase tax revenue for the program – both of which have a significant cost to future retirees.”
Another option to fund Social Security would be lowering the annual cost-of-living adjustment based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) by 0.5% each year through retirement. According to the whitepaper, a mass affluent couple retiring in 25 years would see a reduction in almost $287,000 in lifetime benefits, and an average income couple 10 years from retirement would lose under $100,000.
Other alternatives, like reducing spousal benefits from 50% to 33%, would have a minimal effect on Social Security funding yet would significantly reduce the benefits of the lower-earning spouse of a mass affluent couple 25 years from retirement by nearly $250,000, HealthView Services finds.
Similarly, removing the maximum earnings limit on Social Security contributions for high-income Americans would also have little to no impact on mass affluent and average income couples, the whitepaper adds. A couple earning $500,000 a year, 25 years from retirement and receiving no additional benefits, would pay an additional $252,000 into the system. According to Society of Actuaries modeling cited in the report this would address 70% of Social Security’s shortfall.
The whitepaper also explores the idea of raising payroll tax caps on American workers, from 6.2% to 8%. Such a rise in taxes would cost workers between $133,000 in lower net income for a mass affluent couple over the next 25 years, to $22,000 for an average couple retiring in 10 years, reports findings.
Ultimately, HealthView Services concludes that positive participant behavior, like making additional contributions to retirement savings, could drive adequate income regardless of Social Security’s insolvency.
“The cost for individuals of addressing Social Security’s funding needs will vary considerably based on which proposals are implemented and when they are put into place, but also by income, longevity and claiming age,” added Mastrogiovanni. “Modest additional contributions to retirement savings will be sufficient for most to future proof retirement plans against a range of scenarios in which benefits may be reduced but can still be counted on as a key source of retirement income.”