HealthView Services white paper ranks the dollar impact on future retirees of potential changes to address Social Security's funding shortfall

Unless changes are made to address Social Security's current funding shortfall, in about a decade retirees will face a significant reduction in benefits. HealthView Services' new white paper, Funding Social Security: Ranking the Cost of Proposed Changes on Americans Planning for Retirement, highlights the financial impact of proposals to address the program's solvency on both mass affluent and average income Americans who are either 25 or 10 years from retirement.

The greatest impact on retirees will be if future administrations do nothing and cut benefits. The report shows if benefits are reduced by 21%, consistent with current Social Security funding expectations, a mass affluent couple 25 years from retirement risks losing $908,000 in future Social Security benefits. An average income couple only ten years from retirement would face a cut in lifetime benefits of $252,000.

The paper shows the next most significant proposal in terms of dollar impact for retirees will be the most likely - changing the full retirement age (FRA). Delaying the FRA for future retirees by one year from 67 to 68 would cost a mass affluent couple retiring in 25 years, claiming Social Security at 65 years old, $325,000 in lost lifetime benefits. Under the same conditions, an average income couple will see benefits reduced by $249,000. If the couples delay claiming for one year, they will see Social Security reduced by $125,000 or $95,000.

"This paper provides working Americans, advisors and the financial community cost projection data to understand the ways in which changes to Social Security will affect retirement plans," said, Ron Mastrogiovanni, CEO of HealthView Services. "Congress will have to make hard choices that will reduce benefits or increase tax revenue for the program – both of which have a significant cost to future retirees."

Third ranked is lowering the annual cost-of-living adjustment based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) by 0.5% each year through retirement. For a mass affluent couple retiring in 25 years, this would mean a reduction of almost $287,000 in lifetime benefits. An average income couple ten years from retirement would lose just under $100,000 in Social Security payments.

Reducing spousal benefits from 50% to 33% will have minimal effect on Social Security funding, but significantly reduce the benefits of the lower-earning spouse of a mass affluent couple 25 years from retirement by close to $250,000.

The paper also shows the cost to individuals of proposals to raise taxes on employees and employers to fund Social Security. Raising employees and employers' FICA tax from 6.2% to 8% would address the Social Security funding shortfall at a stroke. The cost to working Americans would range from $133,000 in lower net income for a mass affluent couple over the next 25 years to $22,000 for an average income couple retiring in 10 years.

A change that will have no impact on mass affluent and average income couples would be to eliminate the maximum earnings limit on Social Security contributions for high-income Americans. A couple earning $500,000 a year, 25 years from retirement and receiving no additional benefits, would pay an additional $252,000 into the system. According to Society of Actuaries modeling cited in the report this would address 70% of Social Security's shortfall.

"The cost for individuals of addressing Social Security's funding needs will vary considerably based on which proposals are implemented and when they are put into place, but also by income, longevity and claiming age," added Mastrogiovanni. "Modest additional contributions to retirement savings will be sufficient for most to future proof retirement plans against a range of scenarios in which benefits may be reduced, but can still be counted on as a key source of retirement income."

HealthView Services is a leading provider of retirement healthcare cost data, Social Security optimization, and long-term care retirement planning applications and portfolio management tools for the financial services industry that include health-based longevity expectations.

Annuity Alliance is not affiliated with HealthView Services. This article is for informational and educational purposes only. It should not be used to make a buying decision. If you would like to speak with a financial professional at Annuity Alliance using the Contact Form.