Retirees to Face a 21% Cut to Social Security; why is this happening, and what can be done to fix it?

Without changes, retirees who rely on Social Security income will see a drop in their benefits in about 13 years. A Social Security Administration (SSA) report stated that in 2020 the asset reserves for both the OASI and DI Trust Funds increased by a less than expected $11 billion, to a total of $2.9 trillion. This change results from substantial drops in employment, interest rates, earnings, and the GDP, during 2020’s second calendar quarter (mid pandemic).

Though currently still positive, 2020 was less than projections, and the program’s annual cost is expected to exceed its total yearly income in 2021 (the first time since 1982), remaining higher for the coming 75 years. The disappointing 2020 reserve increase results in a reserve depletion date for the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds to now be lowered from 2035 to 2034.

What can be done to fix this?

U.S. Rep. John Larson (D., CT) has drafted a bill that would slowly increase the Social Security contribution rate so that by around 2043, workers and employers would pay 7.4% instead of 6.2%. The average worker, for example, would pay an additional $0.50 per week keeping the system solvent. Currently, payroll tax is not collected on wages above $132,900. Most importantly, Larson’s bill would apply payroll taxes to wages above $400,000, only affecting the top 0.4%.

According to Alicia Munnell, Professor of Management Sciences at Boston College, “It (Larson’s bill) puts a lot of new money into the system and would eliminate almost all of the long-term deficit……increasing the base and the rate.”

What else can help seniors?

In their analysis of the report, the NCPSSM (National Committee to Preserve Social Security and Medicare) found that in 2095, 40% of the average senior’s Social Security benefit will be consumed by Medicare’s out-of-pocket costs (currently 23%). Stating, seniors cannot afford to have their COLA calculated using an index that does not accurately gauge their unique spending patterns. The NCPSSM supports a bill that would base the COLA on the CPI-E, a CPI for the elderly that “better reflects purchasing patterns of seniors…..making sure seniors’ buying power does not erode over time.”

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Article Sources:

Social Security Report

NCPSSM Analysis of Report

Article by Alicia Munnell