Crash Course In Understanding How Social Security Works
Social Security was never meant to be the primary source of income for people when they retire, but it has become the main source of money for many elderly Americans. According to U.S. News & World Report, Social Security was designed to supplement income, not replace it entirely. Technically, Social Security is only supposed to replace a percentage of a worker’s pre-retirement income based on their lifetime earnings.
Is the Well Running Dry?
Social Security was set up as a pay-as-you-go system. Workers pay taxes based on their earnings, and that money is used to pay current beneficiaries. Any money leftover from payroll taxes, after paying current beneficiaries, went into the Social Security trust fund. Think of it as a rainy-day savings account.
The problem is that Social Security is not collecting as much in payroll taxes anymore and it is having to tap into its trust fund to pay current beneficiaries. Experts predict the trust fund could be depleted in the early 2030s. At that point, Social Security would go back to being a pay-as-you-go system and benefits will likely need to be cut dramatically — possibly more than 20 percent.
Policymakers Need to Act Now
To stop potential benefit cuts, lawmakers need to act and the sooner they do the better for future beneficiaries. Several ideas have been floated such as increasing the full retirement age, increasing the proportion of income subject to payroll taxes, and reducing benefits for retirees with higher levels of total income.
The Seniors Trust believes the best way to address Social Security solvency is to pass the Social Security Expansion Act. This landmark piece of legislation would establish a long-lasting, dependable Trust Fund and pay full fair benefits for seniors.
It’s Time to Recalculate COLA as Well
Another problem is the loss of buying power seniors are seeing, especially with today’s skyrocketing inflation. Social Security is one of the few sources of retirement income that is adjusted for inflation. In 2022, beneficiaries will receive a nearly 6% cost-of-living adjustment (COLA). Unfortunately, that is still not enough to compensate for higher costs of everything from groceries and gas to healthcare expenses.
Currently, the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to calculate COLA. The Social Security Expansion Act would adopt the Consumer Price Index for the Elderly, or CPI-E, which takes into account typical expenses faced by households with individuals age 62 or older. Looking at medical costs alone, CPI-W assumes consumers spend about 7.6% on medical costs, but that figure is actually 12.2% if using CPI-E.
Show Your Support
If you support The Seniors Trust mission to buttress the long-term solvency of Social Security by expanding benefits for seniors – not cutting them – please add your name to our petition to Congress.