What's Ahead for Social Security?
Social Security is a complicated and controversial subject. Its importance cannot be understated, being the sole income source for 40% of elderly Americans and relied upon for a substantial portion of retirement income by many more.
It is no secret there are issues with Social Security. The latest projection is that the Trust Fund will be depleted in 2033 and, unless actions are taken by Congress to shore up the system, benefits to all recipients will have to be reduced by over 20%. But Congress has been slow to address the issue because it is so politically charged. It has always been so. In fact, in the early 1980's, Tip O'Neill, the Speaker of the House at the time, dubbed Social Security the "third rail of politics".
President Biden has proposed plans for Social Security. They do not address the long- term solvency of the program. Rather, they expand benefits, particularly for specific lower-income groups of people who are believed to be most in need. Funding the additional benefits would be accomplished by collecting Social Security from higher income earners.
Here are the details of the Biden plan:
- For low-wage earners - increase the minimum payment to 125% of the federal poverty level. This means the minimum monthly benefit, calculated using 2021 figures, would be $1,341 versus rather than the $896 currently.
- For surviving spouses of dual-earning couples - ensure they would receive at least 75% of the combined amount they were receiving as a couple. Currently, the surviving spouse receives the higher benefit, and the lower benefit is eliminated. This is intended to compensate for the fact that expenses for a surviving spouse tend to be much more than half of their expenses as a couple.
- For caregivers (people who care for children under 12 and for family members with disabilities at least 80 hours per month) - SSA would credit them with earnings equal to half the average national monthly wage index in addition to their actual earnings. This would enable them to qualify for or receive a higher benefit amount in the future.
- For long term recipients - once a person has been receiving benefits for 16 years, their benefit would increase by 1% per year to a maximum of 5% after receiving benefits for 20 years. This is designed to cover some of the higher costs of health care and transportation older beneficiaries tend to incur.
- For some government workers (people who receive pensions from work in "non-covered jobs" (i.e., jobs for which social security is not collected) - no longer reduce their benefits by the Windfall Elimination Provision (WEP) and not reduce their spouse's benefits by the Government Pension Offset (GPO).
- For all recipients - the measure used to determine the annual cost of living adjustments (COLA) would change from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E). It is estimated it would increase the COLA by .2% per year and is intended to reflect the higher health care and transportation costs incurred by older people.
- To pay for the increase in benefits and provide a short-term extension of the trust fund, Social Security would be collected on earnings over $400,000 in addition to the amount collected at the regular earnings limit, which is $142,800 in 2021. This would delay the depletion of the trust fund by five years.
In the coming years, Congress must address the long-term future of Social Security. The reality is that changes are necessary before the trust fund is exhausted. There are several proposals already being discussed.
I think a combination of a few relatively "painless" changes will be implemented when the situation reaches a near crisis level, and that the amounts received by current and soon-to-be recipients will not be affected much, if at all. So, if you are in those age groups, I believe there is no reason for you to worry. What foolhardy congressional member would go near the "third rail" and mess with the social security benefits of their older constituents when they tend to vote in great numbers?