In its 2023 annual report, Social Security revealed that without governmental intervention, the program’s surplus will be depleted by 2035. While some interpreted this as Social Security “going broke,” the reality is more nuanced.
Social Security operates on a pay-as-you-go system, sustained by FICA payroll taxes from workers and employers. As long as these taxes continue, Social Security will not exhaust its funds. However, with the retiree population expanding, the surplus could diminish without bolstering the trust fund. President Biden has introduced several proposed changes to address this concern.
Reinstating the Payroll Tax on High Incomes
The Social Security payroll tax accounts for approximately 90% of the program’s annual revenue. However, only a small percentage of workers reach the tax cap each year, set at $168,600 in 2024. Those earning above this threshold do not pay Social Security taxes on their excess income.
To bolster the Social Security surplus, President Biden suggests reinstating the payroll tax on earnings exceeding $400,000 while leaving incomes between $168,600 and $400,000 untaxed. This adjustment aims to enhance Social Security revenue over time as more individuals attain high-earner status.
Adjusting COLA Calculation Method
Currently, Social Security calculates yearly cost-of-living adjustments (COLAs) using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, studies indicate that this index fails to adequately account for retirees’ expenses, particularly rising healthcare costs. President Biden proposes using the Consumer Price Index for the Elderly (CPI-E) for COLA calculations, offering a more accurate reflection of retirees’ spending patterns and safeguarding elderly beneficiaries against financial strain.
Increasing the Primary Insurance Amount
The “primary insurance amount” (PIA) denotes the benefit individuals receive upon opting for Social Security at their full retirement age. To address retirees’ escalating expenses, President Biden suggests incrementally raising the PIA by 1% annually from age 78 to age 82 until reaching a total increase of 5%. However, implementing these changes necessitates bipartisan support in the U.S. Congress.
To explore your Social Security options further, consider consulting with an FRC® trained advisor proficient in FERS benefits. They can offer personalized insights and guidance tailored to your retirement goals and circumstances.
