Social Security Update - 2022
It is that time of year for an update on Social Security. It seems like this update is earlier than normal. I swear the Social Security report doesn’t typically come out until later in the summer, however, the annual report is now out. So, let’s hit some of the highlights and a few other key related topics.
This annual report I am referring to is from a group of trustees. They are there to monitor the health and condition of Social Security and Medicare. The focus here will be on Social Security. Every year they put out a report on the current conditions of these two programs and this year’s report had some good news.
Social Security is expected to not run out of money for another year! Just to clarify, Social Security is now projected to be able to provide full retirement benefits until 2034, which is one year more than last year’s report. I am sure you are figuring out why. Because the economy recovered so strongly in the last year. It didn’t mention anything about fewer people receiving benefits due to Covid deaths, but I am guessing that played into things too.
Medicare received good news too. The strong economy added another two years to its full benefits status. Sadly, the year it now runs to is 2028, which is just around the corner.
Just to clarify, when Social Security can no longer pay full benefits it does not mean Social Security is completely gone. No, starting in 2035 Social Security will still be able to pay for roughly 75% of benefits. Obviously this means changes will need to be made, which I have talked about before.
There is a subcommittee in the US House of Representatives working on this right now. And they are expected to soon discuss a bill they have been working on titled – Social Security 2100: A Sacred Trust.
This bill has two big changes within its current format. The first is to connect the annual cost-of-living-adjustments to the consumer price index. The next is to apply payroll taxes to incomes above $400,000. These two changes are projected to help keep Social Security funded for another four years through 2038, so not much of a change.
There was a previous version of this bill a couple of years ago which would have substantially improved the solvency of Social Security, however, I guess that version is on the back burner for now. The biggest difference with the previous version is the tax rate for Social Security would have increased from 12.4% to 14.8%. I can guess why no one wants to push that bill right now.
As I have mentioned before, the funding status of Social Security is a recurring issue in Congress. Usually there are last-minute modifications to extend the life and until it looks like Social Security is really in trouble there are no significant changes made. There are a handful of other bills in Congress right now that just nibble around the edges of Social Security, but offer no substantive changes.
Ultimately, there will be impactful changes to Social Security once it is decided to truly modernize it. I am guessing a combination of things like extending out the starting benefits age, increasing taxes and the taxable income levels, and maybe some means testing. You know, if you have enough resources you may not receive full benefits. For now, just know you can plan on Social Security and Medicare being around a few more years in their fully-funded states.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.