Facing benefit cuts of up to 22% in just seven years, lawmakers are scrambling to come up with a solution to a massive problem: How do you save Social Security?
One of the ideas being put forth – this one by the think tank the Committee for Responsible Federal Budget – would mean benefit cuts for some high-earning beneficiaries.
Known as the “Six Figure Limit,” the plan would cap total benefits for a couple retiring at Null Retirement Age, or NRA, at $100,000 a year. The SFL would be adjusted based on marital status and claiming age, with a $50,000 limit for a single retiree, according to the plan.
Capping the benefits would close a fifth of Social Security’s insolvency gap and three-fifths of the 75-year deficit if the SFL were indexed to inflation, proponents said, with savings up to $190 billion.
“In combination with other reforms, the Six Figure Limit could help restore Social Security solvency in a targeted, timely, progressive, and pro-growth way,” the think tank said in a statement.
Only a select few Social Security recipients collect more than $100,000 a year in benefits. Those who do earned at least the Social Security taxable maximum – currently $184,500 – for a minimum of 35 years and collect benefits after their NRA (currently 67 for most retirees).
The cap would be adjusted to reward those who wait later to retire. A single person collecting at NRA would face a $50,000 limit but a couple in which both spouses began collecting benefits at 70 would be called at $124,000 to reflect a 24% delayed retirement credit. A couple with both spouses collecting at 62 would have a $70,000 limit to reflect the 30% early retirement penalty.
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Social Security trustees have warned that the reserves from the Old-Age and Survivors Insurance Trust Fund are set to run out by the fourth quarter of 2032, leaving the agency only able to pay about 78% of promised benefits. That cut would average out to about $500 per month.
Social Security provides benefits to more than 70 million retired workers and people with disabilities. The bulk of the money for Social Security is funded through dedicated payroll taxes and taxes on benefits. Any shortfall, however, is covered by the trust funds.
For the past 16 years, Social Security payments have exceeded its cash income, forcing it to dip into fund reserves to pay benefits. By law, it can’t pay out more in benefits than it receives in revenue, so once the trust fund is gone, cuts will follow.
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