Your Social Security Benefit Is Already Being Cut – Here’s How

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For the nearly 165 million people in the current U.S. workforce, Social Security will almost certainly play a key role in retirement.

For the past 20 years, the national pollster Gallup has surveyed retirees to determine how many people rely on their Social Security income to make ends meet. With the exception of the very first year of the survey, between 84% and 90% of retirees have consistently answered that Social Security is a “large” or “small” portion of their needed income. In other words, very few seniors would be financially sound without a little help from America’s best retirement program.

The only problem is that Social Security benefits are being cut before your very eyes, whether you realize it or not.

Image source: Getty Images.

Social Security is in a $20 trillion hole that keeps getting deeper

Since Social Security began regular payouts to retirees in 1940, the Social Security Board of Trustees has released a thorough annual report detailing the program’s outlook for what it defines as the short-term (10 years) and long-term (75 years). year). The Trustees take into account economic changes, demographic shifts and even fiscal policy when updating Social Security outlooks.

For the past 38 years, the Trustees Report has warned that long-term earnings would not cover the existing payout schedule, including annual cost-of-living adjustments (COLAs). The amount of the expected long-term cash shortfall has steadily increased.

Social Security faced an estimated cash shortfall of $20.4 trillion through 2096, according to the 2022 Board of Trustees report. Based on the Trustees’ most likely forecast, the Old-Age and Survivors Trust (OASI) has more than 48 million retired workers to pay their benefits each month – may need to cut benefits by 23% in 2034 to maintain payouts through 2096 without further cuts.

Retirees could be just 12 years away from a significant cut in Social Security unless lawmakers in Congress get their act together.

Unfortunately, due to the design of Social Security and the revenue streams needed, we are already facing two types of benefit cuts.

The Social Security (COLA) cost-of-living adjustment misses the mark

For starters, Social Security’s measure of inflation, the consumer price index for urban wage earners and white-collar workers (CPI-W), isn’t doing its job as intended.

In an ideal world, when the prices of goods and services that seniors purchase rise, their monthly benefit increases by a proportional amount so that they do not lose purchasing power. But this is far from the case in the real world.

As the full name of the CPI-W indicates, it is an index that tracks the spending habits of “urban wage earners and white-collar workers.” These people are usually not seniors and/or do not receive Social Security benefits. More importantly, they spend their money differently than senior citizens. As a result, the CPI-W assigns higher weights to expenditure categories that are not so important to seniors (such as education and clothing), while lower weights are assigned to crucial expenditure categories for seniors (such as housing and medical care). Ultimately, Social Security COLAs miss the mark.

According to a report released in May by the nonpartisan advocacy group The Senior Citizens League, the purchasing power of Social Security income has plummeted by 40% since 2000. What could be bought for $100 in Social Security benefits in 2000 can now only be bought for $60. the same goods and services.

As long as the CPI-W remains the inflationary chain of Social Security, this loss of purchasing power is likely to continue and leave retirees short.

Image source: Getty Images.

The taxation of benefits is a necessary evil that reduces home benefits for millions

However, a poorly designed cost-of-living adjustment isn’t the only way seniors lose out on Social Security. The tax on benefits also reduces what a significant number of retired workers have to spend.

In 1983, as Social Security asset reserves gathered steam, Democrats and Republicans came together and passed the last major overhaul of the program. The 1983 Social Security amendments contained key proposals from both sides, including a gradual increase in the payroll tax rate, an increase in the full retirement age that would take place in nearly four decades, and the introduction of taxation of benefits to generate additional income to generate. revenue.

When implemented in 1984, up to half of a recipient’s Social Security benefits would be taxable if their adjusted adjusted gross income (MAGI) plus half of benefits exceeded $25,000 ($32,000 for a couple filing jointly ). In 1993, the Clinton administration introduced a second level of taxation that allowed up to 85% of distributions to be taxed at the federal rate if the same MAGI plus half of the distributions exceeded $34,000 for a single filer or $44,000 for couples who jointly file a claim. apply a request. .

Here’s the kicker: The income thresholds associated with the taxation of benefits have never been adjusted for inflation. As COLAs have pushed up monthly payouts over time, more and more retirees are subject to the tax on benefits.

While seniors overwhelmingly hate taxing benefits, the revenue generated by taxing Social Security income is necessary to prevent the already overwhelming $20.4 trillion deficit from widening. In other words, it won’t go away any time soon.

The $18,984 Social Security Bonus that most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can help boost your retirement income. For example: a simple trick can earn you as much as $18,984 more… per year! Once you learn how to maximize your Social Security benefits, we believe you can retire confidently with the peace of mind we all crave. Click here to find out how you can learn more about these strategies.

The Motley Fool has a disclosure policy.


The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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