Social Security was signed into law in 1935 by President Franklin Delano Roosevelt. As with most things founded 86 years ago, many aspects of the Social Security program have changed.
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For starters, in 1930, just before Social Security came to be, life expectancy in the U.S. was just 58 years for men and 62 years for women. As of 2020, those numbers have jumped to 75.1 years and 80.5 years, respectively. This has created a huge financial problem for Social Security payouts, as the ratio of retirees to workers funding the program has risen dramatically. This translates to big changes in Social Security by the time millennials are ready to start their benefits.
Depletion of the Social Security Trust Fund
According to the Social Security Administration, the Old Age and Survivors Trust Fund, which pays the retirement benefits most people associate with Social Security, will become depleted by 2033. That is the last year the SSA anticipates scheduled benefits will continue to be paid. Things aren't quite as dire as that initially sounds. Although the reserve fund will indeed run out, existing workers will still be contributing to Social Security benefits for retirees. However, this continuing tax income is likely to support only 76% of the expected level of benefits. This means millennials may have to prepare to earn 24% less than their current Social Security benefit projections.
Possible Increase in Retirement Age
Obviously, many retirees may be upset to learn that they'll only be receiving 76% of their expected Social Security benefits when they retire. One of the ways that Congress and the SSA are considering protecting those benefits is to raise the retirement age. By raising the age at which retirees can claim their full Social Security benefit, there would be less strain on the system as a whole. Raising the retirement age isn't unprecedented. From 1935 to 1983, full retirement age was 65, but that gradually increased until it reached 67 for those born in 1960 and later. According to the Congressional Budget Office, raising the normal retirement age to 70 by 2035 could save as much as $120 billion over 10 years.
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Possible Increase in Social Security Wage Base
Another option to address the potential reduction in Social Security retirement benefits is to raise the wage base. The wage base is the amount of earnings that are taxable for Social Security purposes. For 2021, the Social Security wage base is $142,800, meaning earnings above that amount are not subject to Social Security taxes. By raising this limit, high earners would be forced to fork over additional taxes to the Social Security program, providing additional funding for retirees. This could translate to higher tax bills for top-earning millennials.
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This article originally appeared on GOBankingRates.com: Here’s How Social Security Will Look for Millennial Retirees