Social Security 2100: A noble effort, but not enough
Mending Social Security requires a holistic approach beyond any single bill.
Historically, retirement savings sat on a three-legged stool made up of pensions, personal savings and Social Security. We learned how broken this stool was during our trip across the country to produce Broken Eggs, a documentary that uncovered the severity of the looming retirement crisis — pensions are nearly extinct, personal savings are at historic lows and Social Security funds are drying up. Altogether, millions of Americans are falling short of that fairytale ending of a secure and comfortable retirement.
Zooming in on Social Security, several factors create a major dilemma for its future. In 1950, there were 16.5 workers for every beneficiary. Now, there are fewer than three workers for each recipient. Further, around 10,000 baby boomers are reaching retirement age every day, while average life expectancy is on the rise.
At its core, Social Security is a pay-as-you-go system with a surplus in its account. In recent years, it hasn’t been taking in as much as it’s giving out. The latest Old-Age and Survivors Insurance (OASI) data suggests that by 2034, Social Security will only be able to provide 78% of the money owed to beneficiaries. It’s a challenging situation, but nonetheless solvable.
The Chair of the House Ways and Means Subcommittee on Social Security, John Larson, D-Conn., offered several solutions for the issue in the bill he recently introduced, Social Security 2100: A Sacred Trust, which aims to generate enough funding to avoid reducing payouts in 2034. Below, I’ve identified a couple key proposals within the bill designed to help rebuild the nation’s Social Security fund:
Increase the income limit: In regard to Social Security, Americans are only taxed on wages up to $142,800 of their income. For example, someone making $500,000 pays Social Security taxes on less than one-third of that amount. To create another source of revenue, Rep. Larson’s bill proposes that any income over $400,000 would also be subject to the tax.
This threshold was determined as a method to keep the burden off the upper-middle class making over $142,000 but under $400,000. Instead, it aims to collect the extra revenue from the top 0.4% of wage earners, as they’re better able to afford it.
Revise the cost-of-living adjustment (COLA) formula: There are different ways the Social Security Administration determines whether it is going to increase benefits each year, if at all. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) formula is currently used to calculate the COLA and takes into account the average individual’s expenses related to goods and services. This year, the COLA is 5.9%, marking the highest increase in nearly 40 years. Adopting a Consumer Price Index for the Elderly (CPI-E) formula would reflect the needs of those most dependent on Social Security by looking at the typical expenses of older Americans, including rising healthcare costs.
The purpose of the COLA is to keep up with inflation and provide purchasing power to individuals. Regardless of the formula being used to calculate it, the increased payouts will have a material impact on the rapidly decreasing Social Security surplus.
A few other ideas not mentioned in this bill that aim to prevent Social Security’s insolvency include adjusting the qualifying age to receive retirement benefits, increasing the rate at which Social Security taxes are paid, and raising employee wages. However, mending Social Security requires a holistic approach beyond any single bill. The intentions are admirable in Social Security 2100: A Sacred Trust, but it’s not enough alone to repair the three legged-stool that once enabled a big part of the American dream, a comfortable retirement.
