The Social Security Administration announced this month that the annual cost of living adjustment (COLA) for Social Security program beneficiaries is set to rise to its highest level since 1981 due to the rampant inflation wreaking havoc on the American economy.
While this is likely good news for many retirees who are reliant on the program, it also brings a reminder regarding the precarious nature that the Social Security Trust Fund currently finds itself in without some kind of corrective legislative action. This is according to a story published this week by Bloomberg.
“Even before the cost-of-living increase was announced, Social Security’s trust fund was set to run out of reserves by 2035 if no changes are made,” the story explains. “Historically, reforms to Social Security don’t make many people happy.”
Basically, the concept of making reforms to the program tends to fall into two basic camps: reduce benefits for program participants going forward, or increase the tax that funds the program to maintain current levels of benefit payments. Neither option is popular, according to Richard Johnson, a retirement expert at the Urban Institute who spoke to Bloomberg.
With demographic trends indicating that the amount of aging workers is growing relative to younger workers who pay into the program, then answering the need to replenish it becomes increasingly necessary.
“That means we have to raise more from each worker or pay less to each beneficiary, or do a little of both,” Johnson said.
On top of the rise in the COLA, there are no practical signs of inflation abating. Compounding this particularly for seniors is the prie of other goods, including energy prices. Those are likely to inch up further due to the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) cartel to reduce oil production by 2 million barrels per day, a decision the United States has criticized.
With the nation currently embroiled in a bitter midterm election period that will decide the majorities in Congress for the remainder of President Biden’s term, Social Security has taken a relative backseat to more hot-button political and social issues.
Congress continues to make progress on the formulation of the Securing a Strong Retirement Act of 2022 (SECURE 2.0), but a final vote has yet to materialize. Recently, the Bipartisan Policy Center (BPC) aimed to point out that bolstering retirement savings needs to be a key consideration of any new retirement-focused legislation.
Read the Social Security article at Bloomberg, subscription required.