Wednesday, January 4, 2017

Proposed Changes to Social Security

Nearly every adult American knows the Social Security Administration will face a financial shortfall when the trust fund runs out of cash in 2034. If nothing is done, both current and future retirees will face benefit cuts of approximately 21 percent.  In order to keep this safety net at full strength, changes have to be made.  The good news is that Social Security is in no danger of going completely bankrupt.  As long as there are people in the workforce, the government will receive payroll taxes which are large enough to cover approximately 80 percent of what they are obligated to pay.  What the government is trying to find, however, is a way to make up for that 20 percent shortfall.

If you are curious about the proposed changes to Social Security which are under consideration by the new, Republican-controlled Congress, there is a list of the proposals below.  According to a series of articles posted on the Fox News website, including one titled "7 Ways the GOP's Proposed Social Security Changes Could Impact Your Pocketbook," a number of ideas are under discussion.  Some of these proposed changes will affect current retirees; others will have a larger effect on people who will reach retirement age in the next decade or two.  Some of the proposals will receive wide support; others will be more controversial.

It is important to remember that the proposals listed below are just that ... proposals.  The final bill may differ from what is being considered, particularly if citizens become upset by any of these proposals and contact their individual U.S. Representatives and Senators to complain.  Whether you support or object to the ideas under consideration, now is the time to let Congress know your opinion.

Proposed Changes to Social Security


1.  First, no new revenues are currently under consideration.  The proposals which have been put forth so far do not include any increase in Social Security withholding; nor do they include an increase in the amount of wages which are subject to Social Security withholding.

2.  Between 2023 and 2030, the full retirement age (which will be 67 in 2022) would gradually increase to age 69.

3.  Beginning in 2023, the way Social Security benefits are calculated would change slightly.  Low-income beneficiaries and people who have worked over 35 years would receive a small increase; those who have above-average incomes would see their benefits decrease slightly.

4.  Beginning in December, 2018, cost-of-living increases would be lower because a different consumer price index would be used.  Instead of the the current CPI-W index, a chained CPI would be used.  The difference is that a chained CPI assumes that inflation causes people to make substitutions when they cannot afford their current expenses.  This means they might move to a less expensive home, buy more affordable cars, or switch from name-brand to generic products.  As a result, according to the chain-weighted CPI, the "real" inflation most people experience is not as large as the actual rate of inflation.  The AARP has long opposed this change, arguing that many seniors already have cut out as much as they can and a chain-weighted CPI could cause even more seniors to eventually end up in poverty.

5.  Some retirees would receive no cost-of-living increases at all after they retire.  Those affected would be single retirees with an adjusted gross income of over $85,000 or joint tax filers with an adjusted gross income over 170,000.

6.  Beginning in January, 2019, there would no longer be an earnings limit on people who begin to collect their Social Security benefits early. Those who continue working while they collect reduced benefits between the age of 62 and their full retirement age could earn as much as they want. 

7.  Between 2045 and 2054, federal income taxes on Social Security benefits would gradually be eliminated.  Currently, up to 85 percent of your benefits are subject to federal income taxes, depending on how much additional income you have.  After this change, only your additional income would be taxable.  However, this proposal would not go into effect for nearly 30 years.

8.  People who delay collecting their Social Security benefits past their full retirement age currently receive an increase in benefits of 8 percent for every year they postpone collecting.  One proposal being considered would allow people to choose a lump sum payment, instead, if they delay receiving their Social Security.

9.  Currently, a non-working spouse can receive a monthly benefit that is up to 50 percent of what the working spouse receives after retirement.  Under the new proposals, there would be a cap on what a non-working spouse could receive, so some spouses would no longer receive half of what the higher wage earner receives.  This cap is more likely to affect high-income couples.

We can expect there will be disagreements on whether or not these are the best ideas for fixing Social Security. However, what is not in dispute is that some changes are necessary and, no matter what Congress does, most people will be impacted in some way by the changes.  If you want to have a voice in what changes are made, be sure to contact your U.S. Representative or Senator.  Ask what changes they support and why they believe those are the best choices.  Then, be sure to let them know if you agree or disagree with each proposal.

Contact your Representative at:  http://www.house.gov/representatives/find/

Contact your Senator at:  https://www.senate.gov/senators/contact/

After the inauguration, contact the new president at:  president@whitehouse.gov

Support the lobbying efforts of AARP by joining them at:  aarp.org

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