(AP) – Baby boomers who haven’t retired yet, as well as early Gen X-ers, are looking at Washington, DC, with some apprehension. The 176-member House Republican Study Committee (RSC) approved a fiscal blueprint in June 2023 to increase the full retirement age to 69 for those turning 62 in 2033.
This measure, along with others, would reduce the number of Americans collecting Social Security benefits, cut costs, and help balance the budget by freeing up “cash” in the system.
Americans who plan to retire in the next 10 to 15 years aren’t happy with that concept since it means they have to work longer to receive full benefits, receiving less money overall.
What’s on The Table
The Old Age and Survivors Trust Fund, which helps fund Social Security, could run out of money in the next 10 years or so. If that happens, Social Security will be solely financed by payroll taxes, which cover about 77% of the current level of benefits. That translates to retirees losing nearly one-quarter of their expected Social Security income when the trust fund runs out.
The RSC report proposed significant changes to help combat this issue. The alterations to Social Security equal a 31% cut by 2086. These changes include the increase in the full retirement age, reducing benefits for above-average earners, and eliminating the Cost of Living Adjustment for those with higher incomes while at the same time weighting COLA for those who do qualify.
Alicia H. Munnell with the Center for Retirement Research at Boston College reports the effects of these cuts could be catastrophic for middle-class earners since the income threshold isn’t very high.
She writes, “The medium worker, who sees benefits drop to 77 percent of current law, had career average earnings of $58,700 in 2022 and the ‘high’ earner, who sees benefits drop to 40 percent of current law, earned $94,000. These are not rich people.”
Munnell says lawmakers should think about the entire retirement income structure when considering cuts to Social Security since less than half of the private sector workforce participates in an employer-sponsored retirement plan.
Andrew Gosselin, senior editor of Money Inc., says the current talks about Social Security are more than just political posturing but instead indicate “a seismic shift in how lawmakers are starting to rethink long-term liabilities.” In other words, more changes could be coming.
Responding to Changes
Late-year Boomers and early Gen X-ers who are considering retirement in the next couple of decades should start planning their budgets for what might happen if Congress does pass Social Security cuts. They need to think about whether their current financial plans will keep them afloat after they stop working.
The consensus among financial planners is that workers should diversify their investment assets now to guard against future changes. Tim Doman, investment analyst and CEO of Top Mobile Banks advises upcoming retirees that “diversifying [their] investment portfolio becomes not only a savvy move but also a protective measure… This approach is particularly invaluable in a climate where Social Security is not the rock-solid safety net it once was.”
Gosselin agrees, saying workers must “become the CEO of [their] own financial future.”
Other experts confirm the necessity to diversify and also advise workers to consider working longer to receive higher benefits, creating and sticking to a budget, investigating other income streams, and reducing debt now so they’re not paying off high-interest credit cards after retirement.
Some financial planners also recommend reducing discretionary expenses and downsizing lifestyles now. Doug Carey, founder and president of WealthTrace, a financial and retirement planning software company, says, “Consider downsizing your home or relocating to a more cost-effective area.”
Leo Smigel, founder of Analyzing Alpha, a financial planning website, advocates an even more radical approach to retirement solvency, saying workers should develop, “a strategy sturdy enough to survive without needing a government safety net.”
Like Carey, Smigel also recommends downsizing one’s home, as well as considering other income sources. Smigel is also a proponent of diversifying retirement options, including making needed changes to an IRA or 401(k) account.
Both Gosselin and Doman advise workers to stay current on legislative changes to Social Security. Gosselin says being well-informed on policy changes allows workers to adapt to changes, “making [them] less likely to be tripped up by sudden amendments to Social Security or any other fiscal policies…”
Doman agrees. “Being actively involved in these conversations not only enriches [their] understanding but also amplifies [their] ability to influence change.”
Linda Chavez, CEO of the Seniors Life Insurance Finder website, advises people to go to the top to express their concerns. She urges workers to contact their local Congressional representatives to let them know how they feel about proposed Social Security or other federal legislation.
Whatever financial plans people make, the last thing they should do is nothing. Gosselin says, “…the old axiom of ‘saving for a rainy day’ needs an update. It’s more like ‘saving for a climate change-induced downpour.’” Workers should start planning now for their future as retirees, even if that time seems a long way off.