On Thursday, the Social Security Administration announced that retirees will receive a cost-of-living adjustment of 8.7%, the highest boost since 1981. Retirees are celebrating this relief from rising prices, but it doesn’t bode well for Social Security’s long-term future.
Social Security originally did not adjust benefits to account for increases in the cost of living. But prompted by high inflation in the 1970s, Congress instituted automatic COLAs. These are calculated each year in autumn and implemented in January of the following year. So starting next year, the average monthly benefit check will rise by about $146. Total Social Security benefits, which cost nearly $1.3 trillion in 2022, which increase by more than $100 billion.
The 8.7% COLA itself isn’t an enormous problem so long as wages keep up. Social Security is a “pay as you go” program, meaning that the benefits paid out next year will come from payroll taxes collected from workers next year. So long as wages grow at the same rate as inflation, extra taxes collected from workers should be enough to cover the extra costs.
The problem is that wages aren’t keeping up. The Bureau of Labor Statistics reports that inflation-adjusted weekly earnings fell by 3.8% over the last year. Higher benefits coupled with lower tax revenues aren’t a good formula, particularly when Social already faces a $20 trillion long-term funding deficit. And it’s that long-term deficit lawmakers should be paying more attention to.
Many in Congress argue that we should simply increase taxes, both to make Social Security solvent and to boost benefits across the board. But the maximum Social Security benefit paid next year will top $43,000 for those retiring at the full retirement age of 67. A high-earning power couple could retire on more than $80,000 in Social Security benefits alone. That maximum benefit is two to three times more than is paid in Canada, the United Kingdom, Australia and New Zealand.
More at: NYPost.com
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