Social Security is a hot topic heading into the November election – and the Social Security Administration is likely to announce a slight increase in monthly checks for beneficiaries next year shortly beforehand.
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According to estimates put forth by The Senior Citizens League, the cost of living adjustment for next year is likely to be 1.3 %, which the group characterized as “extremely low.”
Benefits increased by 1.6 % in 2020, 2.8% in 2019, 2% in 2018, 0.3 percent in 2017 and 0% in 2016.
According to The Senior Citizens League, benefits have lost 30% of their purchasing power since the year 2000.
The Social Security Administration uses a formula to determine what the COLA will be each year. It is based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, which are calculated on a monthly basis by the Bureau of Labor Statistics. Benefits will increase if there is a measurable increase in the index year over year.
The 1.3% forecast is based on data through August, which means the government has one additional month to take into consideration. According to the group, there is a 15% chance it could be lower and a 5% chance it could be higher.
From a broader perspective, there is heightened concern about the future solvency of the program – given the economic effects of the pandemic in particular.
Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told FOX Business that a decline in payroll taxes could lead to a drop in funding for the program, which is already facing solvency issues.
“With so many out of work, and some businesses closing altogether, there’s been a big drop in revenues going into the program,” Johnson said.
Beyond those concerns, President Trump has implemented a payroll tax deferral, which begins in September and runs through the end of the year. He has said he hopes those payments will be forgiven – an action that requires congressional approval – which could spell further damage for the trust funds.
However, as it stands now employees are responsible for paying back the taxes that are deferred from their paychecks next year.
The annual trustees’ report did not take the effects of coronavirus into account when it estimated that the program’s reserves would be depleted by 2035. At that time, levies were expected to be sufficient to cover 79% of scheduled benefits.
An analysis conducted by researchers at the Penn Wharton Budget Model showed that Social Security is at risk of running out of funds as many as four years earlier than anticipated depending on the shape of the U.S. economic recovery.
While Trump has pledged not to harm the popular program, his Democratic opponent, former Vice President Joe Biden, plans to expose incomes above $400,000 to the 12.4% Social Security tax – split evenly between employees and employers. Currently, there is a wage cap of $137,700.