How Social Security Might Change as Congress Mulls Ways to Bolster the Program
The one certainty about Social Security is that drastic changes will have to be made within the next decade to prop up the troubled program. Less certain is what those changes might look like, though you can probably expect some form of tax increase and/or reduced benefits.
As previously reported by GOBankingRates, a recent report from Social Security and Medicare trustees said benefits will have to be cut by 2034 — a year earlier than previously projected — if Congress doesn’t address the program’s long-term funding shortfall. If Congress does nothing, the combined trust funds for Social Security will only be able to pay 78% in promised benefits to retirees and disabled beneficiaries.
To fix the problem, Congress will need to make some major adjustments. Here are a few possibilities:
- Higher income taxes for Social Security recipients: Social Security benefits are subject to federal income taxes if the combined income — including income from wages and other outside sources — exceeds certain thresholds. Depending on your income and filing status, anywhere from 50% to 85% of your income might be subject to taxes, CNBC reported. Congress could raise those percentages to bring more money into the system.
- Higher payroll taxes: Workers in the United States currently contribute 6.2% of their paychecks to Social Security, a total that is matched by their employers. As of 2021, these payroll taxes only apply to yearly wages up to $142,800. That income limit could be raised to tax workers who make well above $142,800. As CNBC noted, President Joe Biden has proposed reapplying the Social Security payroll tax for yearly wages above $400,000.
- Higher contribution limit: Another idea is to raise the contribution limit above 6.2%. Even a small increase would make a huge impact, considering that about 176 million workers currently pay into the system.
- Reduced benefits: The least popular alternative would probably be reducing the amount of money Social Security pays to recipients, though doing so could save the system a considerable amount of money. In fact, younger workers can probably count on getting less from Social Security than the elders, USA Today reported over the summer.
- Raising the full retirement age. Depending on when you were born, the current full retirement age is somewhere between 66 and 67 years old, according to the Social Security Administration. Congress could raise that age.
While these kinds of changes might take a while to implement, there is some good news on a more immediate front: Social Security recipients should get a major cost-of-living adjustment next year to help them deal with high inflation. As GOBankingRates previously reported, the adjustment could be as high as 5.3% in 2022, which would be the biggest COLA increase in more than a decade.
More From GOBankingRates
- What Money Topics Do You Want Covered: Ask the Financially Savvy Female
- The 8 Best Deals From Costco’s September Coupon Book
- Nominate Your Favorite Small Business To Be Featured on GOBankingRates
- The Hidden Costs of Education at Every Level