Social Security — This August, the Social Security program will celebrate its 86th anniversary of ensuring basic financial security to retirees and their families in their senior years. However, baseline Social Security benefits have not been expanded in the last fifty years. At the same time, senior living costs have climbed without adequate compensation. According to a 2019 Ameritrade survey, nearly half or 47 percent of Americans thought that the cost of living was the highest risk to their financial security and long-term investments. Americans may be even more concerned now as this survey was taken before the pandemic pressures pushed inflationary trends higher. In early August 2021, the Federal Reserve said the pandemic-related cost increases are likely to be temporary and would not be changing its policies unless these costs proved to be long term.
Senior Living Cost — Even though the need for a cost-of-living adjustment (COLA) is reviewed each year, the basis for the index as measured by the Consumer Price Index for workers (CPI-W) doesn’t accurately measure the higher cost for retirees. One reason is that seniors are purchasing items such as out-of-pocket health care products more frequently and at a higher cost per item compared to those still working. COLA is provided to stop the erosion of Social Security benefits. But over several decades, seniors have lost purchasing power because the estimate used did not cover the actual cost.
Fair COLA Act — The administration recommends using the CPI-E (Consumer Price Index for the Elderly) rather than CPI-W because it properly weights the goods and services that seniors spend their money on. In addition, legislation has been introduced in the US. House of Representatives called the Fair COLA for Seniors Act of 2021 which would require that the COLA for Social Security benefits be based on CPI-E. Making this change would help future retirees more since the impact would accumulate slowly over time. It isn’t likely to help current seniors as much unless the benefits change was provided retroactively. Estimates indicate that after 25 years, benefits would be 5 percent higher if CPI-E was used instead of the CPI-W. Maintaining inflation adjusted benefit levels will take decades so there is no time like the present to create a more just way of doing so.
Next Year’s COLA — In 2021, retirees received a 1.3 percent increase for COLA on their Social Security benefits, providing an increase in the average monthly benefit of $20. This is in line with the COLA provided for the past ten years that averaged 1.7 percent. The 2022 estimate is much higher by comparison. According to Senior Citizens League, COLA will be up by 6.1 percent in 2022 based on their July estimate. That would be the biggest increase since 1983. Higher prices for food, energy, and used cars contributed to the rise. Be aware that the final COLA estimate used may change because it will be revised to include data through September. The announcement of next year’s COLA is usually made in October followed by the first payment effective in January of the next year.
Benefit Proposal — A new bill titled Social Security 2100 was introduced in the U.S. House of Representatives to increase benefits and extend the program solvency. The bill improves payments by increasing benefits across the board for all those receiving Social Security. It adjusts COLA to reflect the inflation actually experienced by seniors. It makes sure that no one retires into poverty after a full career of work by improving benefits for long serving, low wage workers. It enhances the benefits for widows and widowers from two income households. The plan restores student benefits up to age 22 for dependent children of disabled, deceased, or retired workers. The bill also boosts customer service by the Social Security Administration and prevents the unnecessary closing of field offices. Social Security agencies are required to mail annual statements to all workers 25 and older.
Revenue Proposal — The administration is proposing an increase in the Social Security payroll cap to $400,000 which would raise much needed revenue for the fund solvency and improve fairness. Americans broadly support eliminating the cap according to polling. High income wage earners pay a significantly smaller percentage of their wages in the Social Security tax called the Federal Insurance Contribution Act (FICA) Payroll tax. The 2021 cap is $142,800 in annual wages after which high income wage earners pay no tax. The cap has been around since the tax began in 1937, but it has not been adjusted for the unequal wage growth in recent decades. High wage earners have experienced significant wage growth while low and middle incomes have stagnated. As a result, $2 trillion in annual earnings are not subject to the FICA tax. The increased revenue could be used to restore benefits that have not kept up with inflation plus keeping the fund afloat. American wage earners can’t afford to have their financial lifeline eroded because the wealthiest are not paying their fair share.
Energy Hike — In June, Michigan’s Attorney General (AG) recommended reducing a Consumers Energy rate hike. Residential customers would pay an 8.8 percent increase. Overall rates would be increased by 5.5 percent for residential, commercial, and industrial classes. The total cost is $225 million. The AG testified that the request is excessive and unnecessary. In addition, with the pandemic, now is not the time for consumers to be paying higher rates with job losses and economic hardships.
Infrastructure Bills — Here in Michigan, we could all benefit from better roads and bridges that haven’t been repaired for decades. Congress is finally considering two ways to improve our nation’s infrastructure. The first bipartisan infrastructure bill focuses on what is called “hard” infrastructure and was debated prior to the August recess. It costs about $1.2 trillion for roads, bridges, rail, and rural broadband. The second bill costs about $3.5 trillion and provides funding for more social infrastructure that also specifically helps the elderly including expanded Medicare for dental and vision services and help for seniors to stay in their own homes. The second bill has a long way to go before becoming law so stay tuned for more.
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