We’re just days away from finding out just how much bigger next year’s Social Security checks will be. If the predictions are correct (and they probably are), it will be the biggest bump for retirees in more than four decades.
You may already be aware of the biggest problem with the upcoming Social Security “raise”. It will be too late to offset the effects of inflation that you have already experienced this year.
However, there is something else that you may not know. Here’s the bad news no one is telling you about your huge increase in Social Security.
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Speed up the countdown
Each year, the Social Security trustees issue a report on the current and projected status of the federal program trust funds. The much-anticipated portion of this report is the Trustees’ estimate of when the Social Security Old-Age and Survivors’ Insurance (AHV) trust fund will be exhausted.
The most recent trustee report, published in June 2022, predicted that the AHV trust fund would run out of money in 2034. That was actually good news. In the 2021 report, the estimated year of exhaustion was 2033.
However, the historically large Social Security Cost-of-Living Adjustment (COLA) that is on the way may reflect an acceleration in the countdown to the program’s bankruptcy. Why? The large increase will undermine assumptions made by Social Security administrators.
Inflation is believed to be one of the key variables used in the calculations to determine when the AHV trust fund will be wiped out. Your Social Security COLA is also based on inflation.
In their latest report, Social Security Administrators estimated that the inflation level for 2022 would be between 3.92% and 5.14%. However, experts predict that next year’s Social Security COLA, reflecting the rise in inflation in the third quarter of this year, will be around 8.7%.
The bottom line is that social security will have to pay out more from 2023 onwards than the trustees’ analysis predicts. The greater the outflow of funds, the more likely it is that the program will go bankrupt.
what it could mean for you
Some retirees fear losing their Social Security income if the AHV trust fund runs out of money. But that won’t happen.
The payroll taxes used to fund Social Security will continue to bring billions of dollars to the program even after the trust fund is depleted. However, without the trust fund to be tapped, Social Security cannot pay benefits at current levels.
How much would your social security check be reduced if the program defaulted? The 2022 Trustee’s Report estimated that payroll taxes could likely cover about 77% of planned retiree and surviving spouse benefits.
Some good news (maybe)
Knowing that your big Social Security COLA could shorten the time before benefits are cut probably makes the increase less appealing. However, there could be some good news emerging from the accelerated countdown to Social Security bankruptcy.
Elected officials in Washington, DC already know they have to do something to get Social Security benefits. The earlier the projected date that the OASI Trust Fund will run out of money, the more pressure they are likely to feel.
There are many alternatives that could prevent drastic reductions in performance. For example, President Biden has promoted a plan to raise the payroll tax ceiling to $400,000. This change alone would go a long way towards strengthening social security. Many Americans support raising the full retirement age gradually to 68, which would also help.
Bipartisan efforts will likely be required to keep Social Security benefits intact. With the announcement of a huge increase in Social Security in a few days, the clock could start ticking faster for Democrats and Republicans working together.
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