Social Security is on shaky ground financially. In the coming years, the program expects to owe more in benefits than it takes in as baby boomers exit the workforce, shrinking its primary revenue source -- payroll taxes.
If lawmakers don't manage to find a way to pump more money into Social Security, the program may have to reduce benefits universally once its trust funds run out of money. And we could be in that situation in just a little more than a decade.
Of course, lawmakers don't want that to happen. So many seniors get the bulk of their income from Social Security. If benefit cuts were to happen, it could spur a massive poverty crisis among the elderly.
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As such, lawmakers have tossed around different ideas that could help shore up Social Security's finances. These include raising full retirement age (the age at which recipients can claim their monthly benefits in full), raising the wage cap for Social Security taxes, and raising the Social Security tax rate itself.
There's also a less-popular solution that's been introduced to the mix. It's called means testing, and it could go a long way toward making Social Security more solvent. But it's also an extremely controversial concept that could leave higher earners out in the cold.
How means testing for Social Security might work
Right now, Social Security eligibility doesn't hinge on retirement income. If you're eligible for a certain benefit based on your earnings history, that's the benefit you're entitled to as a senior. It doesn't matter if your annual income at the time of your Social Security claim is $20,000 or $2 million.
Means testing would seek to change that. Means testing involves looking at Social Security recipients' income to determine whether they're entitled to benefits -- and denying benefits to higher earners.
As a random example, lawmakers might decide that anyone earning more than $250,000 a year in retirement isn't eligible for Social Security at all. Or, there might be a phase-out, where you can claim your full Social Security benefit as long as your income doesn't exceed $150,000, but from there, benefits are incrementally reduced until they're whittled down to $0.
The logic behind means testing makes sense to some degree. A senior with a $4 million annual income probably doesn't need their monthly Social Security check to get by, so why give that person that money when the program is running out of it?
But the problem is that all workers pay into Social Security during their careers with the promise of getting a monthly benefit down the line. And changing that narrative isn't apt to sit well with a lot of people.
It's also easy to argue that means testing just plain isn't fair. Let's say someone paid into Social Security during their career when their earnings weren't so high, thereby sacrificing money they needed at the time. If that person comes into money later in life, they'd conceivably get no benefit despite that sacrifice.
That's why taking Social Security benefits away from the wealthy is far from the most commonly discussed solution to the program's financial woes. But it is an option that's been introduced in the past, so we can't assume it's definitely off the table. That's something higher earners -- or those who expect a high income in retirement -- should at least be aware of.
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