In fact, it is very likely that any solution to Social Security could involve a reduction in benefits in its own right, even if the legislator did not necessarily come well out and say that they are reducing the income of retirees receive . In fact, the three proposals to consolidate Social Security would imply a drop in income for at least some retirees. Here are the proposals and how they might affect you.
1. Raising the retirement age
Raising the retirement age is popular among Republicans, many of whom point out that life expectancy has increased significantly since Social Security was created. Democrat Joe Biden has also expressed support for raising the retirement age, proposing the idea in 2007 as part of a program patch.
Extending the age at which you can claim full benefits may not seem like a cutoff, but it is. If you have to work an extra year to get your level, you are missing out on an entire year of earnings. And if you retire on the same schedule as you planned, you would be hit with early production penalties. In addition, if the retirement age is moved to a later date, you miss the chance to earn deferral of retirement credits that increase your profit, for each month you expect to claim after retirement age up to 70 years.
2. Switching the CPI sequence
This method of cutting benefits is a little more complicated, but it basically involves changing the way Social Security calculates inflation during the annual cost of living adjustment (COLAs).
In the current system, the Urban Consumer Prices of Employees and Office Clerks (IPC-W) is used to measure rising prices and to determine whether benefits to seniors; need a little help to keep pace with inflation. But in 2014, President Barack Obama proposed a switch to another of the price index, the chaining of the Consumer Price Index. This pricing of the index takes into account the fact that consumers adapt their buying behavior when prices rise; for example, switching chicken when pork prices go higher, or vice versa.
A switch to the CPI chaining would mean benefits could increase more slowly and recipients will no longer lose purchasing power over time. And with some concerned experts that the COLAs are already too low to account for the increase in the price of elderly things most often being passed on, this could be a big problem.
3. Verification of services
A final proposal which has been supported by some Democrats is to test benefits. This means that high retirees income is reduced from their benefits or even get nothing at all, if their income exceeds a certain threshold.
Social Security is already progressive, providing low-income workers with benefits equivalent to a higher percentage of their pre-retirement income. But the imposition of verification would be a radical change in the way Social Security operates. It has always been sold as a right, because people earn their benefits based on what they pay.
Testing means could also lead to an increase in the number of retirees from being excluded from benefits if the income limits at which benefits were withdrawn were not indexed to inflation.
How do legislators resolve the shortfall?
It remains to be seen whether these solutions in a final plan to consolidate Social Security, or whether the politicians take action at all before the program finances become more serious.
But current and future retirees must prepare for a chance to benefit from cutting into the decades to come, either because the program runs out of money or because legislators cut retirees’ income for ensure that this does not happen.