2024 Social Security Outlook
In its 2023 annual report, Social Security disclosed that without government intervention, the program’s surplus would be exhausted by 2035. While some interpreted this as Social Security facing financial hardship, the situation is more complex.
Social Security operates on a pay-as-you-go basis, relying on FICA payroll taxes from both workers and employers. As long as these taxes continue, Social Security will remain solvent. However, with the aging population, the surplus could dwindle without fortifying the trust fund. President Biden has put forth several proposed changes to address this issue.
Reintroducing Payroll Tax on High Incomes
The Social Security payroll tax contributes about 90% of the program’s yearly revenue. However, only a fraction of workers reach the tax cap each year, currently set at $168,600 in 2024. Individuals earning above this threshold are exempt from Social Security taxes on their excess income.
To boost the Social Security surplus, President Biden proposes reinstating the payroll tax on earnings over $400,000, while leaving incomes between $168,600 and $400,000 untaxed. This adjustment aims to enhance Social Security revenue over time as more individuals become high earners.
Adjusting COLA Calculation Method
Presently, Social Security calculates annual cost-of-living adjustments (COLAs) using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, studies suggest that this index doesn’t fully capture retirees’ expenses, especially rising healthcare costs. President Biden suggests using the Consumer Price Index for the Elderly (CPI-E) for COLA calculations, providing a more accurate reflection of retirees’ spending patterns and protecting elderly beneficiaries from financial strain.
Increasing the Primary Insurance Amount
The “primary insurance amount” (PIA) represents the benefit individuals receive when opting for Social Security at their full retirement age. To address retirees’ increasing expenses, President Biden proposes gradually raising the PIA by 1% annually from age 78 to age 82 until reaching a total increase of 5%. However, implementing these changes requires bipartisan support in the U.S. Congress.
For further exploration of Social Security options, consider consulting with an FRC® trained advisor knowledgeable in FERS benefits. They can offer personalized insights and guidance tailored to your retirement objectives and situation.
