If you're like me, closer to your retirement date than when you started your first full-time job, you keep a close eye on Social Security. For, well, it seems like forever, we've been hearing that Social Security is going broke.
The federal retirement benefits doomsday date is a bit like those other end-of-whatever predictions. It hasn't happened yet and it moves around.
But the constant dire warnings make us a little — OK, a lot — uncomfortable. Some members of Congress are among the worried, including Rep. John B. Larson, chairman of the House Ways and Means Social Security Subcommittee Chairman.
The Connecticut Democrat for years has introduced legislation to strengthen Social Security and the companion medical portion Medicare. He's did so again today, Tuesday, Oct. 26.
Larson's bill, entitled Social Security 2100: A Sacred Trust, makes two key changes to the benefit. It would:
- adopt the Consumer Price Index for the Elderly as the basis of the annual cost-of-living adjustment (COLA), and
- combine the Old-Age and Survivors and Disability Insurance trust funds.
COLA change: Older Americans anxiously await the Social Security Administration (SSA) fall announced of annual cost-of-living adjustments (COLAs). They got good news on Oct. 13, when the SSA said the benefits would go up 5.9 percent effective Jan. 1, 2022. It's the largest hike in almost 40 years.
Uncle Sam uses a few different COLAs. Most are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This calculation usually means at least a little bump, but sometimes it determines that inflation essentially is nonexistent, meaning no Social Security increase. That happened in 2010, 2011, and 2016.
Not only did that upset Social Security beneficiaries, they and some economists say the CPI-W doesn't accurately reflect the costs that seniors face because they aren't working. For example, they don't care that fuel costs are flat. They aren't commuting to work.
CPI for an older demographic: Supporters of the proposed Consumer Price Index for the Elderly, or CPI-E, say it would better reflect the costs seniors face. This change was advocated by President Joe Biden during his campaign.
The CPI-E calculation uses households whose reference person or spouse is age 62 or older. The U.S. Bureau of Labor Statistics (BLS) says that in 2009–2010, approximately 24 percent of all consumer units — you and I tend to call them families — met the CPI-E's classification of the main person or spouse being that age or older.
And, as the BLS graph below shows, expenditures in the CPI-E tend to produce slightly larger COLAs than do the CPI-W or the other main cost calculation, the Consumer Price Index for All Urban Consumers, or CPI-U.
The areas of notable CPI increases for older individuals are housing and medical care. Recreation and apparel are less, although that definitely didn't apply to my well-dressed mom who went to weekly senior center dances well into her 80s!
The CPI-E is projected, on average, to be higher than the CPI-W by 0.2 percentage points per year, according to the summary of Larson's bill. This inflation measurement change, the congressman says, "will especially help older retirees and widows who are more likely to rely on Social Security benefits as they age."
The CPI-E under Larson's bill would apply to COLAs calculated from 2022 through 2026.
More payroll would be taxed: Larson's bill also would mean more workers would pay more into Social Security.
Currently, payroll taxes for the retirement benefit not collected on wages that are greater than $142,800. This Social Security wage base will go up to $147,000 in 2022.
Larson's proposal would make wages up to $400,000 subject to the Social Security portion of Federal Insurance Contributions Act payroll taxes. That means both the workers earning that amount and their employers would pay 6.2 percent of the wage amount toward Social Security.
The remaining payroll tax, 1.45 percent for Medicare that also is paid by both employees and employers, already is collected on all wages, regardless of amount.
The wage base provision would only affect the top 0.4 percent of wage earners, according to a Social Security 2100 fact sheet released by Larson.
More time for more changes: In addition to the Social Security changes that would affect older Americans, Larson's bill makes changes to the program's benefits that go to others, such as survivors and those with disabilities.
"The [COVID-19] pandemic has only underscored what we already knew and has exacerbated systemic inequities — current benefits are not enough," said Larson at a press conference announcing his bill. "With 10,000 Baby Boomers a day becoming eligible, and with Millennials needing Social Security more than any generation, the time for Congress to act is now."
Larson also noted that his bill will deal with that Social Security doomsday date that I mentioned at the start of this post.
He says the bill will extend the depletion date — that's when a 20 percent cut to benefits would occur — to 2038. That gives Congress more time to ensure long term solvency of the Social Security and Medicare Trust Funds.
Will Congress get that time? Larson has introduced similar versions of Social Security 2100 in previous congressional sessions and they stalled.
But with, as Larson noted, the U.S. population quickly aging, there seems to more urgency. The press statement about the bill says it already has nearly 200 cosponsors and has been endorsed by more than 100 advocacy groups (37 are listed here).
So 2021 just might be the year that Social Security 2100 passes and program recipients and those of us nearing benefits eligibility can quit worrying so much.
You also might find these items of interest:
- 7 tax breaks for older taxpayers
- More retirement, and tax, changes ahead under W&M approved SECURE Act 2.0
- Retirement threats: Older Americans' growing debt, taxes on Social Security benefits