Major changes could be coming to Social Security.
It’s getting more difficult for seniors to live on Social Security, especially as inflation continues to surge. For years, lawmakers have been debating various proposals to improve Social Security for retirees.
While none of these laws have been implemented yet, President Biden has big plans for Social Security. Here are four of the most significant changes he’s proposing.
1. Find a better way to measure inflation
Most years, seniors will receive a cost-of-living adjustment (COLA) that’s designed to help Social Security keep up with inflation. Historically, though, COLAs have done a poor job of that. Since 2000, benefits have lost around 40% of their buying power, according to the Senior Citizens League.
This is partly because the annual COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That data examines the spending patterns of workers under the age of 62, which can be vastly different from the spending habits of retirees.
To solve this problem, President Biden and other lawmakers have proposed using the Consumer Price Index for the Elderly (CPI-E) to calculate annual COLAs instead. This metric is more aligned with how seniors actually spend, which could make it easier for benefits to keep up with inflation.
2. Increase taxes for wealthy Americans
Along with inflation struggles, Social Security is also facing a cash flow problem. It’s currently paying out more money in benefits than it’s receiving in taxes. As a result, benefits could potentially face cuts of up to 20% by 2035.
The only way to avoid cuts is to increase funding to the program. Biden has proposed increasing payroll taxes for those earning more than $400,000 per year.
Currently, income up to $147,000 per year is subject to Social Security taxes. That wouldn’t change under Biden’s plan. Those earning between $147,000 per year and $400,000 per year would not see a tax increase. But if you’re earning more than $400,000 per year, you would need to pay Social Security taxes on that income.
This proposal would increase Social Security’s funding significantly and could go a long way toward preventing future cuts. It’s also one of the most likely plans to pass in Congress, as around 81% of Americans across both political parties are in favor of it, according to a 2022 survey from the University of Maryland.
3. Boost benefits for older retirees
Another proposal in the works is an increase in benefits for those who are age 80 or older. Not only will this help older adults maintain buying power, but it will also provide a boost for retirees who are running low on savings. While nothing is set in stone, this plan proposes increasing benefits by around 5%.
This is one of Washington’s more divisive proposals, as only 53% of Republicans and 56% of Democrats are in favor of it, according to the University of Maryland. But if it were to pass, it could provide much-needed relief for older retirees.
4. Increase the minimum benefit amount
Finally, President Biden has proposed increasing the minimum benefit amount from $951 per month to $1,341 per month for those who have worked at least 30 years. This plan would increase Social Security’s cash shortage by around 7%, according to the University of Maryland. For the millions of seniors who depend on Social Security to make ends meet, though, a few extra hundred dollars per month could go a long way.
None of these plans have passed in Congress just yet. But if they do become law, they could bring major changes to Social Security in the coming years and make retirement more affordable.
— Katie Brockman
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Source: The Motley Fool