All of these have the potential to be game changers. Although Social Security has been established for a long time, its regulations are not etched in stone. More extensive improvements can occasionally come down the pike that benefits seniors, and here are three examples of such modifications that might have a significant beneficial impact.
A new method for calculating COLAs
In alignment with the Consumer Price Index for Urban Wage Earners and Clerical Workers for the third quarter (CPI-W), Social Security payments are subject to a cost-of-living adjustment, or COLA. The CPI- W is a subset of the CPI- U (Consumer Price Index for All Urban Consumers ), often used to measure inflation.
The difficulty is that the CPI-W does not accurately reflect the expenditures that the elderly confront regularly. Consider the lifestyles of metropolitan wage earners. It’s simple to understand how they may differ from retirees and why the two groups might encounter quite different expenditures.
If the Social Security Administration is given permission to base COLAs on senior-specific expenses, the increases might wind up providing recipients with a lot more purchasing power. Indeed, advocates have long advocated for COLAs to be based on the CPI-E, or Consumer Price Index for the Elderly, a senior-specific index. That index would undoubtedly consider elements such as healthcare costs, which consume a large portion of seniors’ income.
Increased income levels for tax benefits
Most seniors are surprised to learn that their Social Security payments are taxed based on their provisional income, which is the total of non-Social Security income plus 50% of their yearly benefits. Unfortunately, the provisional income levels for benefit taxes are extremely low.
Seniors who are alone and have a provisional income of $25,000 or more are subject to taxation on the part of their benefits, and it is the same for married couples making $32,000 or more in pretax income.
Despite inflation, these standards were set decades ago and have not been raised in years. If these limits were raised, many seniors would be able to keep more of their Social Security income and make ends meet.
More time to collect delayed retirement benefits
After reaching full retirement age (FRA), which is either 66, 67, or anywhere in between, Social Security beneficiaries can receive their monthly payments in full. The payments are then increased by 8% for each 12-month period that beneficiaries postpone submitting.
However, at 70, seniors can no longer accumulate the delayed retirement credits that raise their benefits. As a result, 70 is considered the latest age to file for Social Security, even though seniors can theoretically file even later.
If the regulations were changed to allow seniors to continue earning delayed retirement credits until the age of 72, many retirees would be able to achieve more financial stability by locking in a bigger monthly payout for life. Of course, this would impact Social Security, but it may also be a lifeline for seniors who did not have the opportunity to save for retirement during their working years.
Are major changes on the way?
Changing the method of how COLAs are computed, changing the provisional income criteria, and providing seniors more time to accumulate by delaying retirement might increase national retirement security. These three items are definitely something that legislators will push for in the coming years.