Some Couples Could Lose Over $900K In Benefits From a Social Security Shortfall
Key Takeaways
- A new study found that a Social Security shortfall could cost American couples hundreds of thousands of dollars in lifetime retirement benefits, even if Congress tries to fix it.
- Some couples could lose as much as $900,000 in lifetime benefits if Congress fails to act and the Social Security trust fund runs out.
- The fixes to support the program will likely lead to lower benefits or reduce income for couples while they’re working.
A Social Security shortfall could cost American couples hundreds of thousands of dollars in lifetime retirement benefits, even if Congress tries to fix it, a new study found.
A recent projection from the Congressional Budget Office found the trust fund that pays for Social Security benefits will run short in 2034, meaning beneficiaries would get monthly checks that are 23% less than the full benefits retirees would be entitled to.
If Congress does nothing to bridge the shortfall, a couple earning more than $175,000 a year and roughly 25 years from retirement could be out of more than $900,000 in lifetime retirement benefits, new research by HealthView Services, a healthcare software company, showed.
“This reflects a reduction of more than $1 for every $5 that they are currently entitled to receive from Social Security,” the report said. If the same couple were 10 years from retirement, their lifetime benefits would be lower by more than $450,000.
The HealthView research assumes that Social Security benefits are 21% lower starting 2033 and these couples retire, typically taking benefits at when the older spouse turns 65 years of age. It also assumes an annual 2.4% cost-of-living adjustment (COLA) and life expectancy of 86 years for men and 90 years for women.
Even if Congress moves to find a fix for the gap in Social Security funding, it could lead to lower benefits or reduced income for couples while they’re working.
More Taxes For Lower Income and Same Benefits?
Employers and employees pay 6.2% each toward the FICA payroll tax that funds Social Security.
According to the research, raising that tax to 8% each will fix Social Security’s solvency problem, but it will also increase the burden on individual and business taxpayers. Under that scenario, an average-income couple 10 years from retirement would pay an additional $22,000 in taxes.
There is also a cap on how much of your income can be taxed by Social Security. For 2024, that maximum taxable earning threshold is $168,600. Eliminating that income limit on Social Security taxes could address nearly 70% of the program’s funding issues, according to HealthView Services.
Allowing income above that cap to be taxed would result in high-income earners paying more taxes but getting the same amount of lifetime benefits.
“A couple earning a combined $500,000 would contribute an additional $252,000 in pre-tax income over the next 25 years,” the report said.