The National Commission on Fiscal Responsibility and Reform, the bi-partisan commission charged with identifying policies to balance the budget, released its initial report today and took aim at Social Security.
Obviously, this is just the beginning of the discussion. However, any possible outcome is almost certain to have both an immediate and a long-term impact on retirement planning.
The committee said its goal was to "reform Social Security for its own sake, not for deficit reduction." Here are the key proposals:
- Gradually change the Social Security benefit formula so lower-earning recipients get a larger percentage in benefits relative to what they earned, and higher-earning workers get a smaller percentage in benefits relative to what they earned.
- Add a special minimum benefit for those people who were lifetime minimum-wage earners that will keep them above the poverty threshold, and index that minimum benefit so it stays ahead of inflation.
- Increase the age to claim full Social Security by one month every two years. In this way, full retirement age would reach 68 in about 2050 and 69 in about 2075. Then, add a hardship exemption for those unable to work beyond 62.
- Provide a benefit boost to current older retirees most at risk of outliving other retirement income.
- Gradually increase the wage cap on which Social Security tax is levied to 90 percent of wages by 2050. Currently, it is 86 percent of earnings -- but because of inflation, it is projected to fall to 82.5 percent by the end of the decade.
- Change the formula for cost of living increases to reflect the chained CPI, which is more flexible than the current method and is expected to better reflect costs that affect older people.
- Cover newly hired state and local workers after 2020.
- Allow greater flexibility in how benefits are claimed. This includes allowing retirees to collect half of their benefits early and the other half at a later age to minimize the impact of reduction for early claiming and would support phased-in retirement.
If you want to read these proposals in their entirety, here's the commission's website.
Besides the changes to Social Security, there are many other proposals that affect retirees and those who are planning for retirement. These include items that have an impact on Medicare, Medicaid, long-term care and veterans health care, along with tax proposals that could hit some retirees and near-retirees hard. We'll talk about some of those tomorrow.
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