Recently, President Joe Biden’s administration suggested measures to reinforce the Social Security Old Age and Survivors Insurance Trust (OASI) and mitigate the impending $22.4 trillion funding shortage anticipated by 2033.
A total of four major changes could have a moderate to major impact in the coming years, whether you are already a retiree, or you are about to apply for your retirement in the coming years. We tell you what these changes are and how they impact on your future income.
Social Security to Change the Way COLA Increments Are Calculated
The Social Security Administration annually adjusts benefits to counteract the impact of inflation on retirees. This adjustment, known as the Cost of Living Adjustment (COLA), relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which monitors fluctuations in prices for goods and services pertinent to approximately 32% of the U.S. population. Notably, the 2023 COLA experienced a remarkable 8.7% surge, a response to escalating costs recorded by the CPI-W. However, as inflationary pressures ease, next year’s COLA will be just 3.2%, which unveils a lower inflation.
Recognizing the diminishing purchasing power of Social Security payments, averaging $1,800 per month for retired individuals, Democratic legislators have introduced two bills: the 2023 Fair COLA for Seniors Act and the Social Security Expansion Act. These proposals advocate for a shift in the COLA calculation method, replacing the CPI-W with the Consumer Price Index for the Elderly (CPI-E). The CPI-E, tailored to reflect the spending patterns of Americans aged 62 and older, is believed to offer a more accurate representation of the expenses incurred by retirees, especially considering factors like prescription drug costs.
Proponents argue that aligning the COLA with the actual spending habits of retirees, particularly in healthcare, is a sensible measure that enhances benefits and optimizes the effectiveness of Social Security for its beneficiaries, as emphasized by Representative John Garamendi, D-Calif., in a news release earlier this year.
Social Security Changes for High Earners and Executives, Other Changes to Come
By 2033, the OASI is slated to face depletion, sending shockwaves through the retirement environment. What led to this impending crisis, and how did we arrive at a point where the financial backbone of retirees is on the brink President Joe Biden steps up to the plate with a blueprint aimed at bolstering funds in the OASI. Explore the details of his plan and how it intends to bridge the staggering $22.4 trillion funding shortage highlighted in the 2023 Trustees Report.
Not all proposed changes are created equal. Some of Biden’s measures will primarily impact high earners and company executives. Delve into the specifics of these changes and their implications for those with retirement savings plans that dwarf the average American. Middle-income earners find themselves caught in the crossfire of proposed changes. Unpack the nuances of Biden’s plan and understand how it affects this demographic, potentially altering their retirement landscape.
The Primary Insurance Amount (PIA) serves as a numerical representation of the Social Security benefits you are entitled to, contingent upon the age at which you opt to commence receiving these benefits and your Average Indexed Monthly Earnings (AIME). Elevating the PIA for individuals between the ages of 78 and 82 could prove advantageous for those encountering escalating expenses, particularly in areas like healthcare, during the latter stages of their lives.