The Bad News No One Is Telling You About Your Huge Social Security Increase
We’re only days away from finding out how much bigger Social Security checks will be next year. If the predictions are right (and they probably are), it will be the largest bump for retirees in more than four decades.
You might already be aware of the biggest problem with the upcoming Social Security “raise.” It will come too late to help offset the impact of inflation that you’ve already experienced this year.
However, there’s something else that you might not know. Here’s the bad news no one is telling you about your huge Social Security increase.
Accelerating the countdown
Every year, the Social Security trustees release a report about the current and projected status of the federal program’s trust funds. The most highly anticipated part of this report is the trustees’ estimation of when Social Security’s Old-Age and Survivors Insurance (OASI) trust fund will be depleted.
The most recent trustees report, published in June 2022, projected that the OASI trust fund will run out of money in 2034. That was actually good news. In the 2021 report, the estimated year of depletion was 2033.
However, the historically large Social Security cost-of-living adjustment (COLA) that’s on the way could reflect an acceleration of the countdown to insolvency for the program. Why? The big increase will undermine the Social Security trustees’ assumptions.
Inflation ranks as one of the most important variables used in the calculations to determine when the OASI trust fund will be wiped out. Your Social Security COLA is also based on inflation.
In their latest report, the Social Security trustees estimated that the inflation level for 2022 would be between 3.92% and 5.14%. But experts are predicting that the Social Security COLA for next year, which reflects the inflation increase 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 starting in 2023 than the trustees’ analysis projected. The greater the outflow of funds, the sooner the program will reach insolvency.
What it could mean to you
Some retirees worry that they will lose their Social Security income when the OASI trust fund runs out of money. That won’t happen, though.
The payroll taxes used to fund Social Security will continue to generate billions of dollars for the program, even after the trust fund is depleted. However, without the trust fund to tap, Social Security won’t be able to pay benefits at current levels.
How much would your Social Security check be reduced when the program becomes insolvent? The 2022 trustees report estimated that payroll taxes would likely be able to cover around 77% of scheduled benefits for retirees and surviving spouses.
Some good news (maybe)
Knowing that your big Social Security COLA could reduce the amount of time until benefits are slashed probably makes the increase less appealing. However, there just might be some good news resulting from the accelerated countdown until Social Security’s insolvency.
Elected officials in Washington, D.C. already know they must do something to preserve Social Security benefits. The sooner the projected date for when the OASI trust fund runs out of money, the more pressure they’ll likely feel.
There are plenty of alternatives that could prevent drastic benefits cuts. For example, President Biden campaigned on a plan that includes raising the payroll tax cap to $400,000. This change alone would go a long way toward bolstering Social Security. Many Americans support incrementally raising the full retirement age to 68 over time, which would also help.
Bipartisan efforts will likely be required to keep Social Security benefits intact. With the announcement of a huge Social Security increase coming in a matter of days, the clock for Democrats and Republicans to work together could tick faster.
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