Written by: Grace Kvantas
It’s likely that at some point in the past you have seen the headlines and heard the conversations about Social Security running out of funds or going bankrupt.
You may have wondered, Will I ever receive my Social Security benefits that I’ve paid so much for over my working years?
The Social Security reserves are indeed growing lower over time and without any changes could eventually run out. One obvious way to help the issue would be to reduce Social Security benefits, but that solution is one that many people are opposed to and one that not many politicians would support. Fortunately, as listed in this article on CNBC, there are two simple solutions that could help keep Social Security around for the long haul.
1. Gradually increase the Social Security payroll tax.
The Social Security payroll tax rate is currently 6.2% for an employee, with a matched 6.2% also being paid by one’s employer, for a total of 12.4% of a worker’s salary being paid into Social Security each year. One proposed strategy is to increase this amount by .2% per year for 10 years, increasing it to 8.2% for both employee and employer in that time span.
2. Tax all wage income.
Currently only the first $127,200 of taxable income is taxable for Social Security. This is called the Social Security wage base, and it increases most years with inflation. According to the article, “Eliminating this taxable wage cap altogether would add 1.1% of GDP to Social Security’s revenue, bringing the total addition to 1.7% when combined with the higher payroll tax mentioned previously.” Of course, if the income that’s taxable for Social Security is increased, those paying high amounts into Social Security will want the maximum Social Security benefits increased as well, but that may or may not happen. The current maximum Social Security benefit at full retirement age is $2,687 per month.
Related: How Tax Reform May Impact You
Overall the Social Security program benefits many citizens and is something that most would like to keep around. Therefore, at some point changes will be implemented that will preserve the program, and over time we will see how it will unfold. Perhaps it will be one or both changes listed above.
When it comes to planning for your personal retirement, it’s important to consider Social Security benefits yet not rely too heavily on them. You’re better off having a good plan in place to be adequately prepared on your own than losing sleep over the what-ifs of Social Security. It’s also beneficial to consult a qualified financial advisor to help you evaluate the ways you can maximize your Social Security benefits while keeping tax implications in consideration when deciding when to draw your benefits.
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