Social Security is financially fragile. In future years, the program expects to owe more benefits than it takes in as baby boomers leave the workforce, reducing its main source of revenue, payroll taxes.
If lawmakers fail to find a way to pump more money into Social Security, the program may have to cut benefits universally once its trust funds run out of money. And we could be in this situation in just over a decade.
Of course, lawmakers don’t want that to happen. Thus, many seniors derive most of their income from social security. If benefit cuts were to occur, it could trigger a massive poverty crisis among the elderly.
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As such, lawmakers have floated different ideas that could help shore up Social Security finances. These include raising the full retirement age (the age at which recipients can claim their full monthly benefits), increasing the salary cap for social security contributions and increasing the social security tax rate itself.
There is also a less popular solution that has been thrown into the mix. It’s called means testing, and it could go a long way toward making Social Security more solvent. But it’s also an extremely controversial concept that could leave out high earners.
How Social Security Means Testing Could Work
Currently, eligibility for Social Security does not depend on retirement income. If you qualify for a certain benefit based on your income history, that is the benefit you are entitled to as a senior. It doesn’t matter if your annual income at the time you apply for Social Security is $20,000 or $2 million.
The means test would seek to change that. Means testing involves looking at the incomes of Social Security recipients to determine if they qualify for benefits and denying benefits to high-income earners.
As a random example, lawmakers could rule that anyone earning more than $250,000 a year in retirement is not eligible for Social Security at all. Or, there may be a phase-out, where you can claim your full Social Security benefits as long as your income does not exceed $150,000, but from there the benefits are gradually reduced until be reduced to $0.
The logic behind means testing makes sense to some extent. A senior with an annual income of $4 million probably doesn’t need their monthly Social Security check to get by, so why give that person that money when the program is running out of resources?
But the problem is that all workers contribute to social security during their career with the promise of getting a monthly benefit down the line. And changing that narrative isn’t likely to sit well with many people.
It’s also easy to argue that the tests just aren’t fair. Let’s say someone paid into Social Security during their career when their income wasn’t that high, sacrificing the money they needed at the time. If this person earns money later in life, it is conceivable that they will not gain any benefit despite this sacrifice.
That’s why stripping Social Security benefits from the wealthy is far from the most commonly discussed solution to the program’s financial problems. But he is an option that was introduced in the past, so we can’t assume it’s definitely out of place. This is something high earners – or those expecting a high income in retirement – should at least be aware of.
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