Changes to Social Security
The waves of change in the realms of Social Security are far-reaching, as more than 66 million Americans receive Social Security and/or Supplemental Security Income. The Social Security Administration (SSA) announces new changes in October of every year. While some of this news may come as a surprise, other parts have been expected.
The Social Security payout increased by 2% for 2018, which was huge news, particularly since the bump is the largest increase since 2012 (with a 3.6% increase). While that increase only meant an extra $27 for most Social Security recipients, that higher percentage payment was intended to level-up buying power based on Consumer Price Index (CPI-W) calculations by the Bureau of Labor Statistics (BLS). Current estimates project that the increase for 2019 will be even higher. Since the BSA calculations are based on inflation readings for July, August, and September, it's difficult to say exactly how big the jump will be. Based on trending pricing data so far in 2018, the increase could be the highest yet.
Until 1975, the increased payout averaged 3.8%, but a new method for calculation was implemented that year.
Higher Taxable Earnings
For 2018, the earnings cap was increased for employees who earn $128,700, compared to the $127,200 cap from 2017. While pushing the cap upwards for the higher taxable earnings may be long overdue, considering the critical state of the SSA's long-term viability. High-income earners are now paying more in Social Security taxes than ever before. Based on current projections, though, that increase may still not be enough. The cap for earned income will likely increase to $132,000 or higher in the next few years.
Social Security Depletion
While Social Security offers a survival lifeline to 42.8 million retired Americans, it will no longer be sustainable or viable solution by 2021. Then, in 2022, the SSA will no longer receive enough money in revenues from employers and employees to cover the payments in benefits.
Of course, there's also the Old-Age, Survivors, and Disability Insurance Trust (OASDI), which has generated revenue since 1982. There has long been discussions about back-up plans, reserves, and the continued revenue that is being generated, but the forthcoming projections all point toward an eventual depletion of the SSA.
Higher Retirement Age
The eligibility age for full retirement benefits has already been gradually going up, as part of the Social Security reforms in 1983. After all, Americans live longer, so the trade off is simple. Either new retirees will wait longer to receive benefits or the payout will be substantially lower.
Currently, Social Security benefits are permanently reduced for those who receive benefits as early as age 62, but that rate will continue to increase for retirees with each new year.
Increases to Disability Benefits
While many Americans only consider the impact on retirees, Social Security disability benefits are also distributed to 10 million Americans. The benefits for the legally blind and the non-blind went up by $20 and $10 respectively, but the eligibility requirements for disability continue to change, making it more difficult for some Americans to receive any benefits at all, while others receive more minimal payments.
Taxation on Benefits
While the up-and-down uncertainty of Social Security payments might be scary, so is one other piece of reform that's not as frequently discussed. Federal tax liability started in 1983, based on Social Security benefits exceeding $25,000; but that liability was expanded in 1993. Already 56% of beneficiaries pay federal taxes on their Social Security income.
With 2022 getting ever-closer, additional reforms will be put into place. It's inevitable, but it's also the only logical step. Social Security income will continue to become more taxable, as the benefits continue to decline. With 62% of Seniors relying on Social Security benefits, deep and painful revisions to the Social Security Administration are ahead, if it has any hope of surviving at all.