Potential Changes to the Social Security System to Keep an Eye On
PUBLISHED BY: David W. Magann, PA
Tampa, FL (Law Firm Newswire) July 29, 2020 – Millions of Americans rely on Social Security as their main source of income. However, over the past few months, the federal government has spent billions of dollars in economic stimulus to help combat the effects of the COVID-19 pandemic. Many share the concern that this massive increase in spending will jeopardize the Social Security system which, by all accounts, was already in danger.
Saving the Social Security System for future generations will be an enormous challenge. Currently, lawmakers’ concern is focused on overcoming the effects of the pandemic, however, once the novel coronavirus is behind us, lawmakers may begin to look to the following changes to Social Security.
Changing the “Full Retirement Age”
The Social Security Administration provides the standard benefit amount to anyone who waits until Full Retirement Age (FRA) to apply for their benefits. Originally, the FRA was set at 65, but it increased to between 66 and 67 back in 1983. Some have proposed increasing the FRA to reduce the total amount of benefits paid over an applicant’s lifetime, potentially extending the life of the program. Of course, doing so would mean individuals will miss out on years of income and, if they apply early, will qualify for reduced benefits.
Recalculating Cost-of-Living Adjustments
Cost-of-living adjustments (COLAs) are incremental increases to the monthly benefit amount intended to keep Social Security benefits in line with inflation. Some propose changing the way COLAs are calculated, using a “chained CPI,” which shows a slower growth in prices because it assumes consumers change their buying behavior if the cost of goods rises. Of course, this would mean a slower average increase in benefits.
Increasing or Eliminating the Payroll Tax Cap
Social Security taxes are only paid on earnings up to a wage base limit. In 2020, that income limit is $137,700. The result would be up to 90 percent of all earnings would be subject to Social Security tax. Some have even suggested subjecting all income to Social Security taxes. However, this may not solve the problem, because the current calculation of benefits depends, in part, on the amount of Social Security taxes paid. Thus, in theory, the more people pay into the system, the higher monthly benefit they would be entitled to.
Increasing the Payroll Tax Rate
Rather than increasing the amount of income subject to Social Security taxes, some suggest increasing the Social Security tax rate. However, to save the Social Security system, the tax hikes would have to be significant. For example, if adjustments were made today, the would need to go up 3.14 percentage points, from 12.4 percent to 15.54 percent.
Limiting Benefits for Higher-Income Individuals
Limiting the availability of Social Security benefits by imposing a means test would reduce the rate of flow out of Social Security. However, doing so could have unintended consequences if the entire Social Security program losses political support as it benefits fewer people.
Altering the Benefits Formula
Under the current system, the Social Security Administration calculates monthly benefits based on average wages in the 35 years the applicant’s earnings were the highest. However, one option to extend the life of the program involves increasing the number of years included in the calculation, up to as many as 38 or 40 years.
This would mean more people would have periods of $0 wages or low earnings factored in, reducing their average wage. This would also disproportionately affect lower-income individuals in physically demanding jobs who cannot continue to perform the same work as they age.
Social Security retirement benefits are just one type of government benefit. Depending on someone’s circumstances, they may be eligible for other types of benefits that can help them increase their monthly income, including veterans benefits and disability benefits. It is important to search out and apply for all available benefits, as the future of Social Security retirement benefits remains uncertain.
Tampa Bay Social Security attorney, David W. Magann explains that applying for Social Security is not always a straightforward task, and sometimes the involvement of an attorney can be necessary. With extensive experience handling Social Security, disability and veterans’ benefits issues, Attorney Magann skillfully advises his clients and assists them in obtaining the benefits they need and deserve. To learn more, contact Attorney Magann at 813-657-9175 or contact him online at http://www.floridasocialsecurity.com/contact/.Learn more at http://www.floridasocialsecurity.com/ David W. Magann, P.A. Main Office: 156 West Robertson Street Brandon, FL 33511 Call: (813) 657-9175 Tampa Office: 18715 N Dale Mabry Hwy Lutz, FL 33548