How to Approach Potential Cuts to Social Security

By now you know I am a big believer in the highest earner in a household waiting until age 70 to start collecting their Social Security benefit. That ensures the highest possible benefit for that individual, and for the surviving spouse.

But with all the recent headlines from some Washington lawmakers pushing for cuts to the program, I know many of you worry that delaying doesn’t make sense if benefits are going to be cut sometime in the future.

I understand that concern. The program does need to be shored up. Starting in less than 10 years it will not take in enough money each year in taxes from workers to cover all of the payments due to retirees.

Still, I do not expect people in their 50s and 60s to be affected by any changes given what has happened in the past.

In 1983, lawmakers facing a similar reality that the program wasn’t on solid financial footing stepped up and reformed Social Security. We’ve been here before my friends.

One of the key changes made in 1983 was to raise the full retirement age from 65 to 67. That’s the age when you are entitled to 100% of your earned benefit. If you wait until age 70 to start, your benefit can be as much as 124% of your FRA benefit.

But here’s the most important thing I want you to understand: No one in their 50s or 60s back then had their FRA changed. Anyone older than 46 in 1983 kept age 65 as their FRA. People aged 24-46 in 1983 were subject to a new FRA, depending on their birth year. It ranged from 65 and 2 months to 66 and 10 months. And that new age 67 FRA? It applied to people who in 1983 were no older than 23.

The point is that Washington phased in changes for younger people who had decades to make any necessary adjustments to their retirement planning. The rules did not change for people 46 and older. And the change was not some stick-it-to-the-younger-generation move. It was based on the fact that our average life expectancy had increased a lot between when the program started and the 1980s. Raising the FRA was a reflection of our longer life expectancy.

I expect that when Congress does get around to addressing Social Security reforms, another increase in the FRA will be front and center. Possibly to age 70. And that would again be a reflection of improved life expectancy. Between the early 1980s and today, the average life expectancy for both men and women who reach age 65 has increased by more than 3 years. And there could be other changes as well. For instance, right now the program only collects tax on incomes up to $160,200. Collecting more from higher earners would help address the program’s shortfall.

We don’t know for sure exactly what changes will be introduced. But I want to stress that I don’t think changes will be made for people within 10 or 15 years of retirement. More than 90% of people surveyed by AARP a few years ago said they think Social Security is an important federal program. That was true for Democrats, Independents, and Republicans. I realize the headlines out of Washington can be unsettling. But when you have a program that has such across-the-board support in America, I am going to bet that Congress will be very careful about how it makes necessary reforms to the program. And they have 1983 as a guide.