7 Money-Raisers That Could Help Save Social Security (If We Act Now)

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The latest data released by the trustees of the Social Security program offers a stark warning to financial advisors and their clients: The primary trust fund used to pay retirement benefits is set to become depleted in 2033.

At that time, payroll tax revenue is expected to fund between 75% and 80% of scheduled Social Security benefits, according to the latest trustees report. As such, Americans relying on the program for retirement security face substantial benefit cuts in just a decade’s time should Congress fail to act.

However, as noted in a new report published this week by the American Academy of Actuaries, the U.S. Congress has a wide range of options to address the Social Security funding crunch — including some reforms that could be implemented immediately and phased in gradually.

According to the academy’s policy experts, if Congress has not acted by 2034, Americans will be faced with an automatic 20% cut in payments to people already receiving benefits, as well as the need to immediately increase Social Security taxes by 25%.

As they stress in the new report, earlier reform action would allow for tax increases and benefit reductions to be phased in gradually. Not only would this help to reduce the cumulative pain of the effort to “save” Social Security, the authors posit, it would also provide individuals more time to plan and adjust to the changes.

“When Congress amended Social Security in the past, benefit reductions were only applied to individuals not yet eligible for benefits, so current recipients did not have their benefits cut,” the authors explain. “In addition, Congress has always phased in large benefit reductions, as a large reduction to one cohort, while not affecting the prior cohort, could be seen as unfair.”

Ultimately, the authors argue, If Congress wants to continue these two traditions, while avoiding a large tax increase in 2034, prompt reform is needed so that the phased-in changes are enough to pay all benefits in 2034.

See the accompanying slideshow for a rundown of the academy’s assessment of seven potential policy actions on the revenue-generation side that they say could be phased in gradually while still having a meaningful cumulative effect on the retirement income insurance program’s financial footing.

(Next week, look for the report’s recommendations on adjusting benefits.)