With Social Security less than seven years from insolvency, at which time it would face a 24% benefit cut, Americans are scrambling to understand what that may mean for their future and retirement.
However, a new paper from the Committee for a Responsible Federal Budget says it has an answer to this uncertainty, with what it calls the “six-figure limit,” or SFL.
The SFL would set a $100,000 cap on the total benefits available to couples retiring at the normal retirement age, or NRA, beginning this year. For people born in 1960 or later, the NRA is 67.
The limit would be adjusted to reflect retirement age and marital status, with a $50,000 limit for single retirees.
[READ: What Is the Social Security COLA for 2027?]
The Proposal: A $100K Social Security Limit
Currently, the highest-income earners may collect up to $100,000 per year in Social Security benefits. “The Six Figure Limit could help restore Social Security solvency in a targeted, timely, progressive, and pro-growth way,” according to the paper.
Jason DeBacker of Open Research Group modeled multiple ways to index the SFL in time:
— When indexed to inflation, it would close one-fifth of Social Security’s solvency gap and three-fifths of its 75th year deficit.
— If fixed in nominal terms and then indexed for average wages, the SFL would eliminate between one-quarter and one-half of the solvency gap and one-quarter to three-fifths of the 75th year deficit.
— It’s projected to save $100 billion to $190 billion over a decade through these options.
The paper asserts that the SFL would generate small savings immediately that would continue to grow over time, improving the solvency of the Social Security trust funds in the process.
How a $100K Social Security Cap Would Impact Retirement Savers
Reactions to the findings are mixed, with some financial experts noting that a six-figure Social Security income is still a benefit reserved for high-income households.
“Practically speaking, very few retirees would be affected. You have to be a top-earning household to even approach six-figure Social Security income, so for a majority of people, this isn’t something that materially changes their plan,” said Mark Stancato, certified financial planner for VIP Wealth Advisors, in an email.
Other experts agree. “Fewer than 2% of beneficiaries hit those levels today, so most clients aren’t affected, even if this passed tomorrow. But I understand the worry,” Jeff Judge, a CFP at Chesapeake Financial Planners, wrote in an email.
“Here’s what I tell worried clients,” Judge adds. “Build as if Social Security delivers less than projected, not zero. That changes how aggressively you contribute to a 401(k) or IRA, how you think about Roth conversions in your 50s and early 60s, and whether you’re stress-testing your plan against a 20% to 24% across-the-board cut (which is what the law requires if the trust fund runs dry with no Congressional action).”
Stancato takes a similar approach. He says: “What I tell clients is simple: Don’t build your retirement around perfect assumptions about Social Security.”
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A $100K Social Security Cap Proposal: What to Know and How to Protect Your Retirement originally appeared on usnews.com