Politicians debate how to close Social Security's long-term funding gap. While I don't thinks we should raise the retirement age, I suspect that will be one of the proposals that may be used to fix the problem.
According to an article by U. S. News & World Report, the Social Security program will be able to pay out benefits for another 20 years. After I retire in another 25 or 30 years, the program will most likely pay out three-quarters of benefits.
When I consider the different options tossed about by Social Security preservationists and politicians, I realize that some proposals for fixing Social Security will hurt me more than others. I can do my best to plan now for the different scenarios.
Lifting ceiling on taxable wages
One option for closing the long-term funding gap is to lift the ceiling on taxable wages. At this time, higher wage earners only pay Social Security "tax" on their income up to $113,700. I think the rationale is that there should be a ceiling on how much money can be taxed since there is a maximum Social Security payout. Because I don't earn that much money, I wouldn't be directly affected. However, I've noticed there is always a trickle down effect in a positive as well as negative direction. I may be working for companies that would cut wages if they have to pay more in taxes. Since I've received temporary as well as permanent pay cuts during the recession, I've learned to put money aside for the future.
Restricting payments to high-income beneficiaries
Another proposal is to not pay people who are wealthy any Social Security or to, at least, restrict how much they receive. This is not entirely troubling to me personally since I view Social Security as a safety net for the poor. If I have a lot of money saved in my 401(k) or Roth IRA, I would not expect to receive as much in Social Security because I don't view it as "money I've paid into the system." I view it as a tax or insurance in case I am too poor to fund my own retirement. My plan is to save 10 percent of my income toward retirement and hope that provides what I need in my old age.
Raising Social Security age
One of the most likely scenarios is that the Social Security age will be raised. I have heard people talk about raising it to 70, which seems rather extreme to me. Why not just raise it to 67? According to the U. S. News & World Report article on the downside of raising the retirement age, it would hurt the people who need the money most. That's because lower-income people who work at manual labor jobs and less educated people tend to die at an earlier age. I know I met a senior citizen man at a craft fair who told me he is trying to survive making jewelry because he can no longer do lawn maintenance. Some experts calculate that people who retire at age 62 may only get about 57 percent of the full benefit if the retirement age is raised to 70. Even though I don't work at a manual job, I don't know if I could work to age 70.
I know I need to take responsibility for my own retirement. However, I also know that it's not easy to handle a pay cut when you are 40, much less when you are retired.
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