what will happen to social security if the retirement age increased? quizlet

The information doesn't lie: a majority of seniors rely on Social Security to meet their month-to-month expenses come retirement. According to the Social Security Administration (SSA), 61% of retired workers currently receiving benefits counts on those benefits to incorporate at to the lowest degree half of their monthly income.

But this vital source of retirement income is as well causing retired workers, pre-retirees, and tens of millions of working Americans grief. The latest annual report from the Social Security Board of Trustees estimates that the program will begin paying out more in benefits than it's receiving each year in revenue past 2020, eventually resulting in the depletion of its more than $2.8 trillion in spare cash past 2034. If this spare cash is completely exhausted, the Trustees have implied that a benefits cutting of upwards to 21% could be needed on an across-the-board basis (i.e., for current and futurity retirees) in order to sustain payouts through the year 2090. That'southward not a comforting outlook for the aforementioned majority of retired workers who count on Social Security each calendar month.

A senior citizen counting his Social Security income.

Image source: Getty Images.

Social Security'southward biggest problem is that it's blowsy

If there's one thing Social Security isn't brusk of, it's finger-pointing as to why the plan is headed downwards an unsustainable path. Some blame the infant boomer generation for their poor saving habits and early Social Security claims, which are expected to weigh heavily on the worker-to-beneficiary ratio. Others betoken to lengthening life expectancies, or the political divide in Washington. At that place'southward no shortage of blame to go effectually.

However, the real blame for Social Security'south seemingly imminent budgetary shortfall can probably exist placed on lawmakers who've called to let an blowsy program to take care of our nation's retirees.

Social Security was signed into law more than than 81 years ago in Aug. 1935. When the first payment was made in 1940, senior citizens weren't living anywhere near as long as they are now. Additionally, the costs that comprised a good chunk of today's expenditures for retired workers (housing and medical care) weren't outpacing aggrandizement past much, if annihilation, in the 1940s.

The final significant overhaul to the Social Security program came during the Reagan era with the passage of the Amendment of 1983. These Amendments introduced the taxation of Social Security benefits, and increased the total retirement historic period (the age at which an individual becomes eligible to receive 100% of their monthly do good) in the decades to come, to name a few of the changes.

While in that location have been some changes to the Social Security plan since 1983, at that place's been no major overhaul to the extent of the 1983 Amendments.

Now, here'south what today'southward seniors are left with.

A Social Security card sitting atop an IRS 1040 tax form.

Paradigm source: Getty Images.

one. The revenue enhancement thresholds haven't been adjusted for inflation in 34 years

The first outcome is that the income thresholds that define what portion of Social Security benefits are taxable haven't been updated in 34 years to account for aggrandizement! When beginning introduced in 1983, individuals with earned income over $25,000, and joint filers with earned income higher up $32,000, could have 50% of their Social Security benefits taxed by the federal government. A decade later, the Clinton administration added some other tax tier, assuasive 85% of Social Security benefits to be taxed if a recipient's annual income topped $34,000, or $44,000 for joint filers.

In 1983 and 1993, these taxation changes afflicted around 1-in-ten, and nearly 1-in-5 households with seniors. By 2015, according to The Senior Citizens League, 56% of seniors owed at least some tax on their Social Security benefits. Had these thresholds kept stride with inflation, private tax filers wouldn't be hit until $57,107 (in 2015 dollars), and couples until $73,097.

A senior citizen working with lumber.

Epitome source: Getty Images.

2. The total retirement historic period hasn't kept pace with life expectancy increases

Another consequence with the Social Security Amendments of 1983 is that they phased in a two-year full retirement age increase over what amounted to a 4-decade period. Outset in 2017, the full retirement age will rise past 2 months per year, ultimately moving from age 66 to historic period 67 between 2016 and 2022 (the full retirement age of 67 applies to anyone born in 1960 or later). In other words, between 1983 and 2022, the total retirement age will accept increased just two years.

However, bodily life expectancies since 1983 have risen at a quicker step. Information shows that the average life expectancy in 1983 was 74.half-dozen years, compared to 78.eight years in 2015 co-ordinate to the Centers for Disease Control and Prevention, an improvement of 4.2 years in 32 years. A slower-growing full retirement age ways retired workers are potentially collecting Social Security for a longer period of fourth dimension than e'er earlier, which is weighing on the programme.

A Social Security card atop a pay stub, highlighting the collection of FICA payroll taxes.

Image source: Getty Images.

three. More income than always is escaping Social Security's payroll tax

It's probably also off-white to say that quite a bit of wealthy Americans' income is escaping Social Security's payroll revenue enhancement. As a refresher, Social Security's payroll tax, which totals 12.iv% and is oft split down the centre between you and your employer, covers earned income betwixt $0.01 and $127,200 as of 2017. This ways earned income above and across $127,200 is costless and clear of the payroll tax.

However, a quick await at the SSA'due south wage distribution statistics from 2015 shows that 137,545 people earned at least $i meg. These individuals would have paid an amass of nigh $sixteen.3 billion in payroll taxes in 2015 (based on the cap of $118,500 that yr). However, these millionaires earned an aggregate of $340.8 billion in income in 2015. That'southward over $324 billion dollars that escaped tax because the maximum taxable earnings cap has been stuck growing at a snail's pace (it's tied to the Average Wage Index). And remember, I'm not including earned income between $118,500 and $999,999 in these figures, either. In other words, the program could be bringing in a lot more money for future generations of retirees if the payroll revenue enhancement cap were adjusted.

A doctor explaining the high costs of medical care to a worried senior patient.

Image source: Getty Images.

4. Social Security's COLA is inadequately taking into business relationship the loftier expenditures seniors face

Lastly, the toll-of-living adjustment (COLA) that seniors receive most years (i.due east., their inflation-based heighten) isn't coming anywhere close to reflecting the true inflation they're dealing with when information technology comes to housing costs and medical care inflation. A quick review of medical care inflation and Social Security's COLAs over the by 35 years shows that medical intendance inflation was college in 33 of 35 years. This makes it practically impossible for seniors to make exercise with what they're being paid since more of their income is going to pay for their medical care with each passing year.

Lawmakers are attempting to make a program that was developed in the 1930s and tinkered with heavily in the 1980s work for seniors in 2017 -- and it'southward clearly not working. Change can merely come from Washington, just that'll only happen one time lawmakers realize that a proficient portion of the plan, both from the revenue and benefits sides of the equation, needs to be refreshed for today's senior citizens.

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Source: https://www.fool.com/retirement/2017/04/08/social-security-is-failing-because-the-program-is.aspx

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