For months, millions of French workers have been protesting Emmanuel Macron’s move to raise the country’s retirement age from 62 to 64. But U.S. workers may be in for a similar change in the coming years, and it’s one they’re unlikely to be happy about.
Changes need to be made to prevent Social Security cuts
Social Security tends to be a lifeline for retired Americans. But the program is in danger of having to cut benefits in a little more than a decade.
The problem is that Social Security’s main source of funding is payroll-tax revenue. But in the coming years, as baby boomers leave the workforce in short order, that revenue source is apt to shrink. If lawmakers don’t find a way to solve Social Security’s upcoming cash crunch, the program may need to cut benefits to the tune of 80% by as early as 2034.
That’s not a scenario lawmakers want to encounter. So they’ve been trying to come up with different ways to pump more money into Social Security.
One option that’s been floating around is to raise the wage cap for Social Security tax purposes. Right now, that cap is set at $160,200, but imposing taxes on higher incomes might help the program immensely.
The problem with that solution, though, is that Social Security also pays a maximum monthly benefit. And it can be argued that it’s not equitable to raise the wage cap without raising the maximum monthly benefit, thereby negating much of the financial upside for the program.
Another solution that’s been proposed is raising the full retirement age for Social Security purposes. Right now, that age is 67 for anyone born in 1960 or later. But lawmakers have suggested moving that age back to 68 or 69 to ease the financial burden on the program and potentially prevent or reduce benefit cuts.
It’s a good idea in theory because unlike raising the wage cap, Social Security may not lose money directly in other ways (such as having to pay out higher benefits to some recipients). If full retirement age gets pushed back, workers will have to wait longer to claim their monthly benefits in full.
While that might seem like the easiest financial solution to Social Security’s problems, the backlash that might ensue could be substantial. On top of actual protests, delaying the full retirement age could force many older Americans to continue working rather than exit the labor force when they may have initially planned to. Not only might that wreck a lot of individual plans, but it could also tighten the job market for future college grads, as well as those trying their hardest to climb the corporate ladder.
And then there are healthcare costs to consider. If employers find themselves with more older workers on their payrolls, the cost of health insurance might skyrocket across the board.
An imperfect solution
Pushing back the full retirement age for Social Security might seem like a good way to help address the program’s financial crisis. But at the very least, it’s a move that’s apt to be met with disappointment on the part of hard-working Americans who don’t want to be forced to extend their careers. And it could have financial implications that those in favor of the idea may be overlooking.