Proposed changes to the Social Security system seem to make headlines every day. National lawmakers continue to keep all options on the table when it comes to sustaining the long-term fiscal health of the program which has a “75-year financing gap.” However, all potential alterations to the Social Security system are particularly worrisome to local residents who need some reliability when making their retirement plans. The need for help in accounting for these changes and strategizing for the future is one common reason why local residents visit a New York retirement lawyer.
Even if no major changes to the system are made, some experts explain how future system beneficiaries will see effective cuts in what they will earn through Social Security. SmartMoney highlighted three of those effective cuts in a story published this weekend by Yahoo Finance.
First, the retirement age is being extended. Many are aware that under current law the age of retirement is set to jump to 67 years old for those born after 1960. This acts as an essential service cut, either by forcing fewer years of benefit or lowering the monthly payments to those who continue to retire at the previous age level of 65. This change alone will cause the “replacement rate” for median wage earners to reportedly drop from 41% to 36% for people who retire 20 years from now.
On top of that, Medicare premiums are automatically deducted from Social Security benefits. The increase in those premiums–from 5% now to 12% by 2030–will lower that replacement rate even further.
Finally, taxation issues surrounding Social Security benefits will also strike a blow to future retirees. All those above a certain threshold must pay taxes on either 50% or 85% of their Social Security benefits. While only 20% of recipients were taxed on those wages in 2002, that number is rising each year. The taxation thresholds are not indexed which means inflation and growth in average wages are pulling more into brackets where their benefits are taxed. The tax is an effective cut to those counting on the income to sustain their retirement.