Social Security has been existing as a cornerstone of financial support to millions of vulnerable individuals for ninety years now. In recent years, however, the program has been facing financing issues, and according to the latest annual report from the Social Security Board of Trustees, the program’s finances appear to have worsened from last year to this year.
It is worth noting that since the program is primarily funded through a dedicated Social Security payroll tax, it can never run out of funds entirely. In addition to the payroll tax revenue, the program’s finances are supplemented by two major trust funds: the Old Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund — and the OASI trust fund is where the financing problem lies.
According to the trustees’ report, the OASI trust fund is projected to become insolvent in less than a decade from now. If this comes to pass, an automatic cut to benefits will be triggered. Lawmakers have since been debating potential solutions to prevent this shortfall, and while nothing has been officially announced yet, it appears that increasing the Full Retirement Age further may just be on the table yet again. Here is what you need to know.
What is the Full Retirement Age?
Social Security can be claimed from age 62, however this is considered as claiming early and your benefits will subject to a reduction of up to 30%. When the program was first introduced, the Full Retirement Age (FRA) was 65, however, following the 1983 amendments, it was decided that the FRA would increase in two month increments annually until it reaches 67 (which will happen in 2026). This was done in order to maintain the program’s financial health as life expectancy grew.
Next year, the FRA will increase one final time, as per the amendments, to 67 years of age for those born in 1960 and later. Due to the projected shortfall, however, it now appears that increasing the FRA further is one of the potential solutions being debated by lawmakers. If no change is done to the program now, the OASI fund will be emptied by 2033, at which point beneficiaries will be hit with a 23% cut to their benefits.
Alternatively, if the two funds are combined into one OASDI fund, the combined fund will be emptied by 2034, at which point, the remaining revenue in the program will only be enough to cover 81% of all scheduled benefits. According to SSA data, in part this shortfall is likely projected due to “the ratio of workers to retirees has declined over time from 16.5 workers per retiree in 1950, to 3.3 in 1985, and about 2.8 in 2013.”
What are SSA officials saying?
According to the SSA Commissioner Frank J. Bisignano, the agency is currently evaluating all possible options, with increasing the FRA being amongst the proposed solutions.
“I think everything’s being considered, will be considered,” SSA Commissioner Frank Bisignano stated on “Mornings with Maria“. “Remember, most people told you and I Social Security wasn’t going to be around,” he continued. “And so the generations that are coming in will probably have a different set of rules than we had.”
Bisignano further explained the following: “It needs, really, to be the trustees, which are the four of us — myself, the Treasury secretary, the labor secretary, the HHS secretary — the White House, which is completely committed to protect and preserve Social Security, and then Congress. And that’s where the real work will happen. And that’ll take a while, but we have plenty of time.”
Findings from a recent Allianz Life study also revealed that, “retirement confidence is tightening, as only 28% of Americans feel certain in their ability to financially support their life goals, down 13 points since 2020.” Additionally, “70% of respondents said they worry more about running out of money in retirement than they do about dying.”
“That number will continue to increase also, of where the max is, and that’s another thing that people put in the equation to think about,” Bisignano added. “Eight years is a long time away. We’re less than 200 days into this administration, and we need Congress to partner with us. The plan was [to] get this to be a great service provider for the American public, and then, with Ways and Means and with [the] Senate, come together with a plan.”