The ‘Big Money Show’ panel discusses new analysis that shows Social Security and Medicare are headed for bankruptcy and warns that retirees face steep benefit cuts unless Washington acts quickly.
social Security faces the threat of bankruptcy in less than a decade, and the new proposal would cap the amount of Social Security benefits a couple can receive each year at $100,000.
The aging of the American population is reducing the balance of the main Social Security fund, which is expected to run out in 2032. Social Security Benefits they are taken from the trust fund and taxes paid, and will be automatically cut off by law during bankruptcy to match income, reducing benefits by an average of 24% across the board.
The nonpartisan Committee on a Responsible Federal Budget (CRFB) launched the Trust Fund Solutions Initiative to explore options for improving Social Security payments, with one such proposal including six-person benefits for the wealthiest couples.
The Six Figure Limit (SFL) proposal would put a $100,000 cap on the total benefit a couple retiring at normal retirement age would receive, with adjustments based on marital status and claim age. For single retirees, the maximum Social Security benefits will be $50,000.
THE EXISTING SOCIAL PROTECTION FUND IS FACED WITH REDUCTIONS BY 2032, OBSERVING AN AUTOMATIC BENEFIT REDUCTION.
The Six-Figure Limit Proposal would cap Social Security benefits for the wealthiest beneficiaries. (Getty Images)
The CRFB noted that although only a small proportion of retirees are found $100,000 in Social Security benefits as a couple or $50,000 as an individual, such figures will become more common over time as the Social Security benefit formula changes.
SFL will freeze Social Security benefits so that no spouse collects benefits during their normal life retirement age they can claim retirement benefits of more than $100,000 a year.
It will also adjust the limit based on marital status and the age at which they start receiving benefits. A couple who delayed collecting benefits as long as possible until age 70 would have an annual limit of $124,000, while a couple who started collecting benefits as soon as possible at age 62 would have an annual limit of $70,000.
SHOULD THE SOCIAL SECURITY COLA BE BASED ON AN INFLATION METRIC BASED UP?
The main Social Security fund faces bankruptcy in less than a decade. (Getty Images/iStock)
CRFB worked with Jason DeBacker of the Open Research Group to model three options, including a $100,000 limit. adjusted for inflationa limit frozen at $100,000 for 20 years then indexed to average earnings growth and a limit frozen at $100,000 then indexed to average earnings growth after 30 years.
It found that an inflation-indexed SFL would save $100 billion over 10 years, while covering 20% of Social Security’s 75-year deficit and 55% of its 75-year deficit.
Both the 20-year and 30-year cap before listing would save $190 billion over 10 years, and while the 20-year proposal would cover 25% of the deficit, the 30-year option would cover 55% of the 75-year deficit and 60% of the 75-year deficit.
“While the SFL will not significantly delay the Social Security trust’s bankruptcy date alone, it may be reasonably delayed by failure to comply with other changes,” the CRFB wrote.
It added that the 20-year SFL will be delay shortage for seven years subject to employer’s compensation tax, while a 30-year SFL with employer’s compensation tax will permanently restore solvency for 75 years and above.
BUDGET DEFICIT LEADS TO $1 TRILLION IN FIRST FIVE MONTHS OF FISCAL YEAR: CBO
Skipping Social Security can result in automatic benefits under federal law. (Jeffrey Greenberg/Educational Images/Common Images Group via Getty Images)
The analysis found that SFL would only affect the top 0.05% of couples in the first years of its implementation with benefits above $100,000 and an average retirement income of more than $2.5 million per year, with an average net worth of more than $65 million.
Over time, most retirees will be affected by SFL, with the top 1% of couples receiving 5% less in benefits on average by 2030 with no impact on the 90%. That would translate into a 7% reduction in profits by 2040 for the top 1% and no impact on the bottom 80%; and a 24% reduction in income for the top 1% by 2060 with no impact on the bottom 70% of households.
Top advocacy groups have expressed skepticism about proposals that would cut Social Security benefits received by Americans.
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“Proposals focused on holding back Social Security don’t solve the problem before Congress: making sure every American gets every dollar they’ve earned,” said Jenn Jones, AARP’s VP of financial security and community living.
“Worse, ideas like this crash have become the backdrop for sweeping cuts. AARP urges policymakers to focus on bipartisan solutions that protect and strengthen Social Security, not cut it.”
