We know that Social Security benefits help millions of seniors meet their needs, especially since too many people don’t have enough savings for retirement. Unfortunately, these benefits don’t cover all retirees’ financial needs very well. There is a potential risk of a benefit cut that would reduce Social Security checks by as much as 21%. Here’s when this could happen and why it could happen.
Outstanding Student Debt Can Reduce Social Security Amount
Millions of older Americans face a financial challenge that could threaten their retirement plans: outstanding student loan debt. While many may view student debt as a problem faced primarily by younger workers, there are 2.2 million people over age 55 with outstanding loans.
This significantly endangers retirees, who, unlike younger workers, have no way to pay off debt otherwise, according to a report from the New School’s Schwartz Center for Economic Policy Analysis.
“Older debtors lack the characteristics of younger debtors: they have more years left to work at the ‘optimal age’ (to earn a salary), more time to save for retirement, making it difficult for them to achieve promised ‘returns’ on their investment,” according to the report.
Who is paying off their student loans and how long do they take to pay them off?
On average, it takes workers between the ages of 55 and 64 nearly 11 years to finish paying off their student loans, while those 65 and older will need 3.5 years, Federal Reserve data show.
While the Biden administration has so far forgiven $167 billion in student loans for 4.75 million Americans, that help is only for certain groups, such as those working in the public sector.
Millions of seniors still have student debt. In fact, the report found that middle-income workers age 55 and older represent the highest proportion of all student loan borrowers.
The age of beneficiaries at retirement, the amount paid into Social Security, and the number of years paid affect the maximum payment retirees receive. The average received is $1,907 per month, which means that 15% withheld to pay student debt would be $286. Worse, the report found that 14.9% of workers over age 55 have not completed the career for which they borrowed, stripping them of the benefits for which they borrowed in the first place.
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