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No doubt you have heard or read the posts and comments, perhaps by friends about the Social Security COLA.
It’s not accurate, not fair, not enough, doesn’t keep up with our actual spending, use the CPI-E and all the rest.
One thing it does for sure is add to the Trusts growing shortfall.
Some people really need that annual boost, if for nothing else to help offset growing Medicare premiums. But others, including many in the HD community, should be able to plan on their own to deal with inflation in retirement. It is built into projections and spreadsheets, right? We should have a backup plan.
What would you think about modifying the application of the COLA for higher income retirees? For example, no COLA for five years if you retire with the maximum FRA SS benefit or limit the COLA for the top 50% of retirees income wise to the dollar amount received at the mid point or maybe at a certain income level a COLA adjustment every other year?
We need a long term fix to Social Security and in my opinion the full burden should not be on today’s workers alone.
So, what do you say, can you handle the affects of inflation in retirement on your own?
If no COLA, then there should be no increase in Part B/D Medicare surcharge. (10% last few years)
What has one to do with the other? Health care costs rise no matter what.
It appears the 2026 report from the Social Security trustees includes an “expected” inflation rate of 2.7% for 2026 and then 2.4% for subsequent years in the calculation of the depletion date of the retirement trust fund.
So my take is to worry about unexpected inflation which currently appears to me may be higher than the “intermediate” assumptions used by the trustees.
A balanced approach between current and future generations seems to be a reasonable approach. My understanding is FDR was deeply concerned that Social Security not be viewed as a traditional welfare plan to build long-term political durability to the program.
Yes he was, that’s why is supposed to be self funding and not part of the budget/political process. The current expected 2027 COLA is 3.1% but could change.
Effectively a 2.52% COLA increase if the full 85% of SS benefits are taxable & 22% marginal tax rate.
(1-(0.85×0.22))=0.813
and
(1-(0.85×0.22))×3.1%=2.5203%
The temp senior deduction distorts this as does an argument for using an effective income tax rate.
At the end of the day, however, higher income beneficiaries receive a net lower COLA due to the income tax on benefits paid to the SS trust funds. ($57.8 billion funded the SS trust fund from income tax paid by beneficiaries in recent year.)
The income tax return is a bunch of numbers on schedules. It”s where you say “what’s my refund” or “I owe what” with the taxation of SS benefits not pointing out a net COLA reduction. Your bank account balance saw it happen though.
FDR and Frances Perkins didn’t bring tablets from the Mount. It’s shortsighted not to consider current demographics and data analytics capabilities when considering SS current problems.
I’m quite sure the actuaries consider demographics in every projection they make.
isn’t the fact that the vast majority of women didn’t work outside the home in 1935 and therefore needed the protection of spousal benefits a demographic fact that now needs to be revisited?
Nominal values confuse me comparing today with tomorrow.
So, I force myself to track everything in real terms including expected returns. So, I end up thinking about inflation related to items that outpace inflation, like healthcare. The ten year TIPS yield is a good benchmark if a particular items seems odd.
I agree that real dollar amounts should be used in planning.
To your question, RDQ, yes, I considered inflation in my retirement planning and am prepared. In fact, I feel conflicted about claiming SS in two more years at age 70; I won’t need it and would only be contributing to the problems.
A good primer on fixing SS is in this month’s The Atlantic: The Elixir of the Payroll-Tax Cap and Other Social Security Myths .
Thank you Jo Bo for the gift article.
This article says what i have been saying on my blog for years, especially about the cap. Messing with the basic structure of the program, especially in this contentious environment, is risky business.
The nonsense posted on social media, the display of ignorance is downright depressing. 😩
It’s also risky to ignore that the reality that the society today is very different from that of 1935.
In many ways yes, families are different, work patterns are certainly different, but the basic idea that the individual has the primary responsibility to prepare for their financial security and future is the same, except that the financial future is likely considerably longer than in 1935.
My parents never planned, never invested, lived on SS and survived only because they shared a house with my sister and her family. They grew up in the depression, you would think they learned.
I have a cousin who for decades ran a successful business in a wealthy area, they had a lovely home, something I never could afford, installed a great pool and cabana. And they had a condo in Florida.
But they never invested, never set up a retirement plan and now they live in a tiny apartment and are subsidized by their children, including keeping the condo.
I am convinced that in many cases people are their own problem.
But how does any of this relate to the huge number of couples with 2 earners and single people who are being asked to subsidize the lifestyle choice of an unemployed spouse? Given the info collected every year on the tax return, it would be possible to distinguish families where there is a legimate need for a spouse to stay home from those without the need. I see two benefits from doing this. 1) The working partner with the unemployed lifestyle partner could be assessed a higher SS tax to cover the expected payout to non working partner. 2) Fewer couples might decide in favor of a stay-at home so more workers would be contributing to the fund. I don’t see this as a total solution , but it does illustrate how responding to demographic changes and utilizing the tech not available in 1935 could be used to restructure rather than apply band aids.
Am I missing something? Since when does raising children, the traditional role of wives and mothers, need to be “legitimized?”
Have we as Americans been so propagandized by feminism and wokism to now feel the need to legitimize Motherhood?
God help us!
Why do we need a legitimate reason for a spouse to stay home? Some would say to raise the children instead of day care or help support the community by volunteering in schools, etc.
We all subsidize someone else, that’s how insurance and an organized society work.
My wife pays IRMAA premiums based on what is effectively my income. I guess that’s fair because it’s really household income.
it doesn’t need to be legitimized. But be honest— kids after age 6 spend most of their time in school. They don’t need full time care givers. My mother went back to work when my brother and I went to school, and we would qualify as latch key kids. But our upbringing was good as any. And my parents could afford to send us to college. My mother also had her own pension and a say in the family finances.
I followed my mother’s example. The kids are no worse for my employment. Same for all of my friends.
i have no problem with married couples adopting the lifestyle choice of a stay at home partner. BUT why should couples where both spouses work or single people subsidize this?? RQ repeatedly posts about how quickly he exhausted the amount he paid into SS. Part of that reason is SS pays him 150% of the benefit it does my husband. And this says nothing about fairness to people with low incomes where both spouses can’t afford the luxury of a stay at home.
also my IRMAA payment, which I find totally fair, is deducted from my SS every month. Isn’t your wife’s?
No, it pays my wife 50% of my benefit in her name and deducts IRMAA from her check, based on household earnings the bulk of which of which is my pension. And, of course, we pay income taxes on both benefits which go back into the SS trust…subsidizing others.
Thanks for posting. Excellent article that many should read.
My lifestyle would not change if the COLA was eliminated or taxed differently. I do object to our clueless politicians changing the rules that people have counted on when they made their plans. So, if they change the formula, they should not disadvantage current retirees who did not do anything wrong (except vote for the wrong politicians).
You have a point of course, but is it fair to place the full burden on making SS sustainable only on current workers when changes should have been made during the years those of us retired were working. That period goes back 25-30 years.
I graduated from college in 1980 at 22. In 1983 congress passed the Social Security Amendments Act which did the following per AI:
Raised the Full Retirement Age: Gradually increased the retirement age from 65 to 67, a phase-in that began for workers born in 1938 and reached age 67 for those born in 1960 and later.
Increased Payroll Taxes: Accelerated previously scheduled payroll tax increases and equalized the tax rate for self-employed workers with the combined employer-employee rate.
Taxed Benefits: Made up to 50% of Social Security benefits subject to federal income tax for higher-income beneficiaries, with the revenue credited to the trust funds (now up to 85%).
Adjusted COLAs: Delayed the annual Cost-of-Living Adjustment (COLA) by six months, shifting it from June to December.
The first change had the effect of cutting lifetime benefits by 13%.
The third change was later increased to 85% of benefits by the 85% under the Omnibus Budget Reconciliation Act of 1993, which became effective for the 1994 tax year.
So there have been a lot of benefits cuts to my generation since the beginning of my Social Security contract.
I feel my contribution to trying to keep Social Security solvent is enough, so I won’t feel bad if future generations have their benefits reduced.
Also remember whenI started working there were defined benefit pension which shifted to defined contribution with more of an onus placed our generation to figure out how to make up the difference by learning about investing.
David,
I am 7 years older, it appears, but I understand your post, and I agree with you. Despite RQ’s contention, those were and remain cuts.
My biggest argument with RQ and company is the fact that we were forced into a deal, without any option to opt out…we played the game by their rules…and after the fact…some people think it’s OK to move the goal posts, or change the deal when it’s time to collect on promised benefits.
No thank you! Anyone who thinks they are receiving too much should send a check to the IRS….and leave the rest of us alone.
Want to change the deal…again? Change it for those under 50… and phase it in. And Oh Yeah…try not to crush small businesses as you do it.
David, Thanks for the detailed trip down memory lane. Ahh good times.
It’s been like watching a train wreck in slow motion hasn’t it?
In all those years Amtrak was always supposed to be fixed too.
I guess the lesson is stay off government trains. Flying whether literally for travel or figuratively for retirement by investing in capital markets for years is a much better way to get to one’s destination.
Actually I don’t see any of those as benefit cuts. And those changes were 30 years ago. The benefit formula remains unchanged.
Really?
I’m sure you were entitled to claim Social Security at 65, but us younger retirees received at 13% cut in lifetime benefits. This is due to not being able to claim full retirement benefits at 65, and thus only having three, vs five additional years to build higher income at 8% per year.
Moving a tax increase forward is not a cut in benefits, but it decreased our income early in our careers to fund payments for others.
Paying taxes on 85% of one’s income is an effective cut. You have to pay the tax to the government so the effect is you have less to spend, it cuts your disposable income.
These are facts.
Maybe some people don’t see facts because they don’t personally affect them.
I’m not against changes to Social Security to increase its longevity, but I think our generation has done our part. Why can’t the current generation experience some of the same?
PS if nothing is done to solidify Social Security benefits then we face an additional cut cut in the future of 22-24%. This would be an overall cut to our generation of 35-37% for benefits we would have received if no changes were made. I’m not saying they weren’t necessary, again just that we have done our part.
I would like to see a restructure toward something like Chile has done. But any big moves are political poison and will die in some committee
Isn’t the taxation of social security benefits (from 1983) the mechanism for returning benefits from higher income beneficiaries to the SS Trust Funds? Yes, the added taxes from 1993 fund the Medicare Hospital Insurance Trust Fund. However the mechanism already exists to ‘not pay’ higher income beneficiaries. Not necessary to introduce more convoluted rules as I see it.
Worker bees only pay half of the SS payroll tax. Workers pay income tax on that money. Employers pay the other half of the payroll tax. Workers pay no income tax on the employer portion.
So in 1983, SS recipients with incomes exceeding $25K single, and $32K married, began having to pay income tax on up to 50% of their SS benefit, (the 50% that they never paid taxes on while working.
Later the 50% was increased to 85%.
So we are not returning any of the benefits, we are paying tax on a portion of it. The tax we pay on our SS, goes into the trust fund to help pay benefits.
We are paying income tax on the portion of the benefit we did not fund with our contributions just as we would on a contributory pension when our contributions were not pre-tax. The difference is SS is based on an average. If we actually paid tax only after we had received an amount equal to our actual contributions, my SS would have been 100% taxable starting ten years ago.
Money is fungible, ergo $100 income tax paid in to the SS Trust Fund is equal to a $100 reduction of a benefit paid from the Trust Fund. That works the same for your bank balance, too.
I see your logic. I was thinking of the confusion many have regarding the sums that early claimers have to return if their incomes exceed a certain level.
In 2025 the combined FICA/SECA payroll/self-employed taxes brought in $1.3 trillion. The rest of the revenue (for the SS Trust Funds) comes from these sources:
$68.9 billion from interest on money that the trust funds invested in federally backed guaranteed securities.
$57.8 billion from federal income taxes that people paid on their Social Security benefits.
Less than $50 million from reimbursements to the trust funds from the U.S. Treasury.
Above sourced per 6/15/26 updated AARP article.
I see where you were going after I used ‘return of benefits’ in my post. My bad, it’s all good.
I have a local govt pension. It must get profits from investments to pay a COLA. Due to mismangement, our pension has only awarded one 1% COLA in fifteen years. I know the impact no COLAs have, so I am not a fan of further COLA reductions from the SS
.My pension, the great bulk of our income, does not have a COLA. I built investments that pay monthly interest easily tapped if necessary, but currently reinvested.
However, I also built a significant cushion upon retirement by assuring my initial retirement income was equal to 100% of my pre retirement salary – an idea I have been roundly chastised for suggesting as a worthy goal.
For my estimates the 80% of my pre retirement salary made sense: no longer incurring payroll taxes (7.65%), no state & local income taxes (approx 6.57%) on SS & pension, not contributing +15% of salary to 401k plan. I ignored commuting/other work costs and simply viewed the above as reasonable approach to an 80% estimated need. Hard to argue with the math.
Even without pension COLAs, I have always had a buffer between our actual spending and SS/pension payments. Part of that is we had a modest lifestyle and part is we have slowed down and have not taken expensive vacations in recent years. The only time I have spent any of our investment accounts was for car purchases, but my conservative investment account has increased 250% since retiring.
The idea that most people in lower paying jobs that we all depend on or those even in higher paying ones would do all of this is ridiculous. Most people do not spend so much time thinking about money. And I’m pretty sure that is probably a good thing.
I have read about various ideas to help fix the looming crisis. I suspect the fix will come at the eleventh hour, and be crafted to minimize the number of voters unhappy with the changes.
I do think the topic of inflation is important, and I recently came across an excellent and readable article by Bill Bernstein and Prof. McQuarrie titled “The Money Illusion-A User’s Manual”.
Go to: http://www.muckrack.com/william-bernstein/articles
Someone mentioned this site on HD before, and I apologize for not remembering who you are, but I’m grateful that you did! Several earlier articles are listed and they are also worth a read.
Jack (and the original recommender), thanks for the link to Advisor Perspectives and the Bernstein/McQuarrie article. Another one I enjoyed by the same two gents is this one: The Many Utilities of Retirement – Articles – Advisor Perspectives
I’ve read nearly everything Bernstein has published and heard he and McQuarrie wrote a new book, but not to be released until March 2027.
I am not sure if we would fall into the groups you mentioned or not? We have only been taking SS for around 18 mos, so only 1 COLA so far. It did help us with the Medicare premium going up. SS and 2 very small pensions are our base income, and we have been able to live on them for the most part. The 401k, now IRA funds we are using for extras and to save for big things. We are saving for a replacement car and recently replaced our 20 y/o refrigerator before it failed. And travel, both to our families and some fun things. So I think if our COLA was modified we would be ok for awhile, but we also were responsible and saved and did without things like fun traveling like I wanted to before retirement. Chris
Dick, I applaud your proposal or some variation thereof. COLA seems like a logical first place to start nibbling away at benefits for those who can absorb it.
I’ll even go further: provide an “ opt out” lump sum payment ( or a few staggered payments) similar to what corporations do when freezing pensions for those who could qualify.
I’m dragging my feet until 70 to even contemplate collecting S.S. I hope by then the benefit is reduced in a logical way perhaps as you propose – for starters at least.
Add a reasonably fair way to opt out for those who are already retired, secure and at least in my case, loathe the whole idea of receiving money monthly from the government especially when knowing the government can’t afford it…. that will be real progress.
The change you propose here would not affect me at my income level. I think that your idea could be one of several changes to rescue SS.
Considering that the payroll tax never increased during the final 30 years of my working life, I could justify having to pay tax on more of my benefit. We should not expect today’s workers to shoulder the entire burden, though they have to be some part of the solution as well.
It seems that Congress is beginning to take this seriously, still, I’m pretty ticked off that it’s taken this long.
Dan: I am interested in your comment about “Congress is beginning to take the issue seriously”. I have seen absolutely nothing from the 5 senators and representatives who are to represent me in Congress. Further, I have seen nothing in the print or televised news that leads me to believe anything is being done. What are you seeing/hearing/reading to indicate this issue is being addressed? Thanks.
Okay, Dave, here’s an answer. Please don’t laugh.
Reps. Tom Cole, R-Okla., and Tom Suozzi, D-N.Y., introduced The Bipartisan Social Security Commission Act of 2026 (H.R. 9187).
Thanks, Dan. I will look into that.
I follow this issue very closely and the only thing I see is growing talk about raising or eliminating the taxable wage cap which does not actually fix the problem and is just a popular way to push the burden onto about 6% of worker who earn above the current cap.
Because of the anti-tax sentiment and the false narrative that eliminating “fraud” will be a fix, you can’t expect anything to be done in the next three years.
My greatest fear are fixes that cause us to deviate from the original design of the program such as using general revenue or capping the benefit or taxing earnings that are not counted in the benefit calculation.
Nobody seems to have the guts to tell Americans the truth. I read every day where people are convinced all would be well if Congress had not “stolen” the funds, not paid interest and didn’t give the money back- all of which is rubbish. SS has been funded the same with the accounting trust way since 1939.
Here is a good example on what people believe https://quinnscommentary.net/2026/07/12/do-the-math/
I hear people say they paid taxes all their working lives and now want to know where the money went not having a clue how the system works or that their taxes paid the previous generations benefits.
SS was set up almost 100 years ago. The society was a lot different then. Biggest difference was that it was unusual for married women to work. I do think it wouldn’t necessarily be a bad thing to restructure the system. Why should a married worker earn a half benefit for an unemployed spouse or even several spouses in case of divorce that may be more than the benefit for a full time employed single worker? I don’t support an across the board end to the COLA; fine to end mine, but definitely not for lower income beneficiaries