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Social Security news tends to come in good/bad news pairings. The Cost-of-Living Adjustment (COLA) was the good news for 2022. Current recipients are collecting 5.9% more: the largest increase in 39 years.
The adjustment resulted in a monthly increase of about $90 for a 67-year-old senior whose benefit is around $1,500 per month.
Not surprisingly, the larger paychecks were shaved by an increase in the Medicare Part B cost of more than $20. However, that’s not the news pairing I’m talking about. The Social Security bad news is the perilous dwindling of the trust fund. The fund is now projected to run out in less than 15 years.
If no changes are made, the Social Security System could still pay about 75% of the benefits based on current Social Security tax income. Lower benefits would be a budgeting headache for some and a catastrophe for many seniors. Political solutions need to be agreed upon soon, as in yesterday.
With the popularity of Social Security and Medicare to all Americans, it’s difficult to imagine that adjustments won’t be made to keep the benefits whole. Numerous fixes have been proposed and supported by various groups over the years.
One recent proposal by Rep. John B. Larson (D-Connecticut, chairman of the House Social Security subcommittee) involves raising payroll taxes while changing the COLA formula to give more weight to factors borne more heavily on the elderly, such as health care costs.
Another potential solution to the Social Security income deficit is continuing to raise the Full Retirement Age (FRA) past age 67. Currently, Full Retirement Age is age 66 if you were born between 1943 and 1954. The FRA grows by two months per year for younger seniors, reaching a current maximum of 67 for those born in 1960 or after.
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Some believe that if a higher FRA is enacted, labor wage categories should be excluded because jobs heavy on physical labor are more difficult to continue in older years.
Other options for trust fund recovery include raising the ceiling of income subject to Social Security Taxes and further taxing Social Security income. Currently, up to 85% of Social Security income is subject to income tax.
Life is full of shocks despite our careful planning. The Great Recession, the pandemic, and, increasingly, economic fallouts from climate change wreak havoc on our plans and budgets. Whether made for health or lifestyle reasons, the decisions of when to retire and when to collect benefits are crucial ones.
In most cases, retirees who choose to collect Social Security benefits before their Full Retirement Age face a lower benefit for the rest of their lives.
The pandemic has highlighted and exacerbated existing issues in the older work force. A survey by the Employee Benefit Research Institute and Greenwald Research found that 53% of Black American and Hispanic American retirees said they had retired earlier than planned, compared with 46% for White American retirees. 40% of Blacks and Hispanics who retired did so because of health reasons, compared to 32% of Whites.
Social Security benefits provide about 40% of the average American’s retirement income. It’s a decent return on investment, especially considering many would not have been willing or able to put aside the money along the way. The rest must be generated from savings or, for lucky ones, pensions.
As I await my first Social Security automatic deposit, I think about those whose hard work made this happen. Franklin D. Roosevelt signed the Social Security Act in 1935, three years after proposing a “New Deal” instigated by the Great Depression.
The Social Security website has a surprisingly detailed and interesting account of the history. Reading this reminded me of the ups and downs of politics, and of how much we owe to so many of our forebears.
— Karen Telleen-Lawton serves seniors and pre-seniors as the principal of Decisive Path Fee-Only Financial Advisory in Santa Barbara. You can reach her with your financial planning questions at [email protected]. Click here to read previous columns. The opinions expressed are her own.
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