It’s no secret – the Social Security program as we know it is struggling to survive long-term. Something needs to be done to make sure every retiree – today and in the future – receives their entitled benefits. That will only happen if we act now to shore up the Social Security trust fund.
Last spring, the Social Security Board of Trustees revealed that starting sometime in 2021, the program’s annual costs will exceed its income from employee and employer payroll taxes and interest earnings. That means that soon, Social Security will need to begin drawing on assets in its trust funds to continue paying full benefits. This situation is due to the bulk of the baby boom generation entering retirement. They out-populate the younger generations, like millennials, who are currently paying into the program. Making matters worse is the fact that the government is currently collecting less in payroll taxes than normal due to high rates of unemployment related to COVID-19.
Suggestions to Shore Up Social Security
So, what can we do to shore up Social Security? Kiplinger.com looked into some of the most popular proposals on how to keep Social Security solvent and weighed in on whether they make sense or not. Here’s what they found:
- Boost the payroll tax rate – This seems like a likely solution. The article points out that the Social Security Administration calculated that if we raise the payroll tax by 0.1 percentage points per year from 2026 to 2045, until it reaches 14.4%, then we would reduce the shortfall by almost half over 75 years.
- Increase the limit on wages subject to tax – The current wage cap is $142,800, any income over that amount is not taxed. There are calls to collect taxes on wages over a certain threshold, namely $400,000. This would put more money in coffers without putting more financial stress on lower-wage earners.
- Expand the types of income taxed – Another suggestion is to collect Social Security tax on investment income. Social Security analysts found that adding a 6.2% tax to investment income for high earners starting in 2022 would reduce the shortfall by 30% over 75 years.
- Alter the formula for cost-of-living adjustments (COLAs) – Many believe the CPI-W overstates inflation, so some reformers call for linking COLAs to a “chained” CPI, which accounts for changes in consumer spending patterns as prices increase. Another option is to calculate COLA based on the consumer price index for the elderly (CPI-E), which puts more emphasis on expenses that tend to be highest for seniors, such as health care.
- Adjust the benefits formula – Right now, Social Security calculates benefit amounts based on an average of the worker’s highest earnings over 35 years. One suggestion is to change the formula so that the replacement rate is the same or higher for low earners but smaller for high earners, who are more likely to have additional income sources in retirement.
Is There a Sure Thing to Shore Up Social Security?
One thing is certain, there’s been a whole lot of talk but not a lot of action. Passage of The Social Security Expansion Act would change that. This comprehensive piece of legislation seeks to reform Social Security the right way: by expanding and strengthening benefits proven to reduce senior poverty and improve retirement security, and by extending the solvency of this crucial program.
The Seniors Trust is committed to pushing this bill through Congress. One of its four main goals is to see the Consumer Price Index for the Elderly (CPI-E) used to calculate Social Security Cost-of-Living Adjustments (COLAs) instead of the Consumer Price Index for Urban Wage Earners (CPI-W) used currently. As pointed out in the Kiplinger.com article, this is a popular proposal because it puts more money into seniors’ wallets. Additionally, the CPI-E is considered a better measure of inflation for older adults because it puts more weight on seniors’ biggest expenses, namely health care and housing.
You can show lawmakers you are onboard and support the Social Security Expansion Act by signing our petition to Congress. Join The Seniors Trust as we strive to improve the lives of senior citizens today and for the future.