Social Security has been in the spotlight a lot in 2022, especially as those collecting benefits while retired are forced to live on a fixed income.
Inflation has made it hard for seniors collecting Social Security to survive. They’re unable to afford food, medications, healthcare, and housing costs.
According to The Nonpareil, 88% of Americans that are over age 65 collect Social Security benefits and more than half of them say they’re their main source of income.
Here are 3 major changes lawmakers have proposed in the past that they would like to see for Social Security
First, lawmakers would like to see Social Security payroll tax applied to more income. As lower rates of birth happen as well as people living longer, a new problem has been created.
Those collecting Social Security benefits make up more of the population than workers currently paying Social Security tax. The worker to retiree collecting benefits ratio is 2.8. It was 5.1 in 1960 and is expected to be even less in 2035 at 2.3.
There aren’t enough working Americans to pay for the number of Americans collecting retirement benefits. This means the trust fund that pays for everyone’s benefits is expected to be depleted by 2034. After that, people will only get 77% of their full benefits.
Senator Bernie Sanders and Representative Peter DeFazio introduced a bill called the Social Security Expansion Act earlier this year. The bill would add payroll tax for Social Security to those earning $250,000 or more.
If this was put into place, it could fix the issue for around 75 years.
The consumer price index used for inflation tracks working Americans- there is one for the elderly but it isn’t used to determine COLA
Another change they would like to make is to change the formula they use to determine the COLA. This formula began being used in 1975 to help keep benefits on par with inflation.
With the Consumer Price Index for Urban Wage Earners and Clerical Workers, the increase is made. The issue is that the CPI-W is not a good way to track the spending patterns for seniors specifically.
This tracks basic goods and services like groceries, gas, utilities, and everyday basics. In addition it tracks school costs, clothing, and transportation. Seniors are very unlikely to be spending their money on those types of things. They often put funding toward medical care, medications, and housing costs. By using the CPI-W, seniors have lost 40% of their buying power in the last twenty years.
Under the Social Security Expansion Act, the CPI-E, or Consumer Price Index for the Elderly, would be a much better system to use for the COLA formula. By not using this one for the last two decades, the small difference between the two has created a massive disparity. If they’d used the one to track elderly spending, monthly payments would be $5,800 on average and retirees would still have adequate purchasing power.
Finally, the third major change lawmakers would like to see is an increase in payments to older retirees. As people grow older, their medical and medication costs increase. Under President Joe Biden’s proposal, seniors would get a boost for getting older.
The plan would increase benefits by 1% per ear between the ages of 78 and 82. This means those who have been on benefits for twenty years would see a 5% increase over a 5 year span.
COLA 2023 & what it means for Social Security benefits
Samantha edits our personal finance and consumer news section. Have a question or lead? Send it to [email protected].