WASHINGTON — An 8.7% increase in the Social Security cost of living announced Thursday is welcome news for retirees struggling to cope with surging inflation. But it could bring social safety net programs one step closer to bankruptcy.
The Social Security Old Age and Survivor Insurance Trust Fund, which pays retiree benefits, will run out in 2034, according to the government’s annual report in June. These funds only provide enough money to cover 77% of the planned benefits unless Congress intervenes.
Social Security is primarily funded by payroll taxes, taxes levied on social security benefits, and interest on money invested by trust funds.
Now that the program is paying more to help retirees keep up with rising prices, the program will come under even more pressure to sustain itself. It warns that reserves could be exhausted by 2034 as a result of greater profits.
Referring to the cost of living adjustments, Maya McGinius, chairman of the Responsible Federal Budget Committee, said, “This huge increase in COLA could speed up the year of bankruptcy by a year.” It is a reminder that postponing addressing imbalances makes those dependent on Social Security particularly vulnerable to further financial deterioration.”
Increased spending on retirees will be partially offset by higher taxes on Americans. In addition to larger benefits, the maximum amount of income subject to the Social Security payroll tax will increase from $147,000 to $160,200. Employers and employees each contribute her 6.2% of wages up to a salary threshold that is adjusted annually based on average wage growth.
As wages rise, so does the amount of taxable income.
McGuineas estimates that the Social Security Trust Fund could have dried up as early as two years had it not been for the offsetting effect of higher tax thresholds.
Kathleen Romig, head of social security and disability policy at the Center on Budget and Policy Priorities, said the exhaustion date could be up to two years earlier. But she added that several years of high inflation are unlikely to fundamentally change the long-term financial outlook for Social Security.
“It is normal for Social Security trustees to update their expected reserve depletion dates as circumstances change,” Romig said.
Romig said more than 65 million retirees depend on Social Security for most of their income, and the rising cost of living will ensure older Americans stay out of poverty as they age. .
The June forecast actually shows the fund depletion date one year later than previous forecasts for 2033, a result of a stronger economic recovery than expected in 2021.
Anqi Chen, Assistant Director of Savings Research Boston University Center for Retirement Studiessaid that the impact of the cost-of-living adjustment on the Social Security Trust Fund would depend on a combination of wage growth and labor force participation in the U.S. economy.
Cheng, who is also a senior research economist at the center, said, “Higher wage growth means more social security income, and higher labor force participation rates mean more workers will contribute to the program and generate more income. I mean,” he said.
The future of Social Security was a big issue in this year’s midterm elections. Republicans say their proposal is meant to protect the long-term viability of Social Security, but Democrats and President Biden say they will scale back the program if Republicans control Congress. warned that it would curb benefits to retirees.
“MAGA Republicans in Congress continue to threaten Social Security and Medicare — putting them on a chopping board every five years, threatening benefits, proposing to change eligibility,” said a White House press secretary. “If Republicans in Congress get their way, seniors will pay more for prescription drugs and their Social Security benefits will never be as secure,” Karine Jean-Pierre said in a statement Wednesday. increase.”