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Projections for the 2027 COLA are around 3.5%, but that could be the last such increase.
As part the effort to fix SS solvency, the idea of a flat fixed dollar COLA has surfaced again. In short that would mean most retirees would receive less than under the current calculation.
For example, the COLA adjustment would be based on a certain level of benefits, say the 20th percentile. That is currently about $1,200 to $1,300 per month. So, 3.5% of $1,250 is $43.75 or a COLA of $44.00. That would be the dollar amount of everyone’s COLA. Therefore, beneficiaries at or below the 20% percentile will receive an equal or greater amount than under the current system and 80% will receive a lower COLA.
The Committee for a Responsible Federal Budget estimates that at the 20th percentile a Flat-Rate COLA enacted in 2027 would close half of Social Security’s 75-year shortfall; at the 30th percentile it would close two-fifths of Social Security’s long-term gap.
Needless to say the AARP strongly opposes this approach, saying it would especially harm older retirees.
Another option being mentioned is a straight COLA cap
In any case, lower future COLAs in some form may be on the horizon. Time to plan?
I’m counting on republicans winning and getting my five grand payoff.
The number of workers supporting each retired person continues to decline. With AI potential impact making this problem worse.
SS as a system was originally sold to the population and seems more acceptable when everyone who pays can also collect. Once you begin doing things like reducing the COLA for those with higher income, you are eroding this rationale.
If the country can’t fund the system through taxing current workers wages, then something will have to give.
If your assets in retirement are sufficient to cover your expenses without the receipt of SS benefits, you should look forward to the day when they will have to.
Yes, let’s continue to transfer income from teenagers flipping hamburgers to Warren Buffett so he can receive his rightfully earned social security payment with full COLA.
Buffet only has a salary of $100,000 so he won’t even receive the maximum SS benefit😎
True, but he would likely be sympathetic to my argument.
SS was designed as a partial income replacement plan which is why the taxes are based on the income used to calculate benefits (inflation adjusted). This was designed to give people a reason to support the program as an earned benefit and focus on future retirement income.
In my view it would be a big mistake to change any of that by either taxing people on earnings not counted toward a future benefit or taxing any other form of income such as interest and dividends or even accumulated wealth.
A couple of relatively modest changes can extend the solvency for 50 years and along the way make other changes as necessary.
Little wonder many young people view SS and Medicare as huge scams that simply transfer their income to older generations. Using regressive taxes to boot. Many SS recipients receive much more than they put in.
It’s not a scam, it’s social insurance. I don’t see it as regressive. The taxes are based on earnings and so are the benefits plus the benefit formula is skewed to give a higher benefit to lower income workers. The percentage bend points decline with higher average wage of the individual.
Virtually all beneficiaries receive more than they pay in taxes within six years of starting to collect. That’s why taxing SS benefits make sense. And also another reason why it isn’t regressive.
I collected in benefits all I paid in taxes ten years ago and all my employer paid as well at this point.
Disabled children, some spouses and ex-spouses and surviving spouses all may collect without paying taxes on their own work earnings. That’s why it is insurance. It’s worked fine for over 80 years, cry’s of scam are misplaced.
As far a Medicare goes that is pure insurance. Taxes fund Part A and premiums and out of pocket costs and general revenue fund part B.
All insurance transfers someone’s money to someone else. That is the very concept, collective protection. Hardly a scam at all and to call it that is irresponsible. If there was no such transfer, what is the alternative for everyone regardless of means.
Frankly, I wish all I paid into and now pay for Medicare went to someone else instead of the hundreds of thousands in medical bills my wife and I have incurred in the last few years.
You may want to consider dropping all forms of insurance if you view the concept as a scam and if you feel comfortable with accepting all the risk on your own.
Well said !
I agree that the word “scam” is not the primary perception of the young. After all, they don’t (yet) have a precedence to point to that they will not receive S.S. or Medicare benefit they have/will pay into.
That said, people have been justifiably wary of the long-term viability of these programs for decades.
Specific to your S.S. “insurance” characterization; it is spot on in both its original intent as the program was envisioned and how it applies to many who rely on it for basic sustenance due to economic and or other life challenges. That’s all great in history.
Where the S.S. “insurance” categorization falls apart in our modern economy is when all the money does is “sustain life style” when that “lifestyle” for many is pretty elevated already. We should be responsible for maintaining our own “life styles” without looking for “insurance” from the government.
To wit, I recently spent a few days fishing with a group of fellow retirees the majority of whom have multiple times my wealth (an always humbling few days each year). I tossed the question out into the campfire and cigar smoke regarding what they thought about the S.S. checks they either get or will get in the coming years.
The responses ranged from “oh, my beer money” to “that’s gas money for the float plane and the boat you rode in this week” to “if they are stupid enough to send me a check every month…..” to utter indifference.
(Now to be fair, outside of the S.S. topic, this group is very philanthropic as a whole).
In summary, people tend to refer to extremes like Warren Buffet but there are millions of TRULY financially independent multi-millionaires out there who I am sure are glad to know they won’t starve if all goes wrong for them in the latter years of their lives…..but sure don’t need an “insurance policy” payout every month to “sustain lifestyle” ….or for any other reason in the meantime. I also don’t think anyone around that campfire would vote differently if the checks stopped coming or never came to them in their own lifetimes.
Let’s hope part of the “fix” for S.S. that the three-ring circus in Washington comes up with actually adheres to the “insurance” aspect for those who TRULY NEED IT in future generations.
I think your analogy is a bit flawed for several reasons. First, you are looking at SS primarily as retirement income for the worker. It is far more than that and beyond retirement income is where the disability and life insurance element comes in. I had a nephew who was totally disabled from birth, he was able to collect SS and it was a great help to the family for 40 years covering his many expenses.
Also, your examples of friends attitudes are not of the real world. You must know that. Tens of million of seniors rely on SS as a significant portion or all of their income.
Should be responsible ourselves ? Sounds good to me, but many people can’t, don’t or won’t and we all have very different abilities and life experiences along the way. If people were responsible, retirement and emergency savings would be far higher than they actually are.
We aren’t getting anything from the government. We contributed to a large risk pool and our contributions are returned through that pool. Not equally of course, some more and some less. That’s what organized societies do and thus recognize we are not all equal in many ways, taking adequate responsibility among them. To simply say, “tough” to those who fail is tough talk, but very impractical.
Sorry to say, the view you express is similar to theory put forth in Project 2025. An ideal but never in human history achievable goal. So we must deal with it the best we can.
Ah, yet another politically charged, supercilious (not to be confused with super silly, but that applies too) response from Richard Quinn.
Your routine, trite approach to write a response that does not even mirror the content of the text you disagree with or are incapable of understanding due to inherently severe philosophical solipsism is quaint.
At the end of the day Dick, people like me and those gathered around that camp fire would rather see the dollars wasted/to be wasted on us used to help others vs perennially brag on line about how we’ve received more than we have contributed to S.S. to support our lifestyle.
Your virtuous, condescending lectures ring hollow outside of the self imposed echo chamber in which you are entombed..
You really should have run for congress….you’d fit right in the “ring”.
If you perceive what I said as political, so be it even though I merely presented facts.
The number of Americans who view SS as wasted on them because it’s pocket change are few and far between. And of course, I don’t think anyone is forced to claim their benefits and if they didn’t it would help the trust.
There is no bragging, it’s a fact about the payback that applies to everyone who collects. It’s the way the program is structured. It’s why it’s not a scam, it’s why it’s valuable to society.
How wound you categorize “We should be responsible for maintaining our own “life styles” without looking for “insurance” from the government.” I find it rather out of touch and a bit arrogant. Certainly devoid of understanding of the masses, many of whom don’t likely know what float plane is.
To satisfy your desire, simply give your SS payments to charity and anyone in need, but I guess you and your friends already do that so all is well.
I’ll leave you to keep talking to yourself Richard.
You might try spending less time on all this lost motion of trying to convince everyone of your view of the world and go live your own best life. This “ain’t it” by any measure.
You’ll be happier with some fresh air (both literally and metaphorically).
Mr. Buffet would also have additional earned income from his director fees subject to the self employment tax.
Of particular note to me is that the amount Mr. Buffet and other directors receive are modest in amount for serving on the Berkshire Hathaway board.
Most directors earn around $3,000 to $7,000 per year from Berkshire depending on the number of meetings held. This is a tiny fraction of the average S&P 500 director compensation, which typically exceeds $250,000 annually.
The many Americans facing cat food diets without their SS should receive COLAs. The upper middle class and wealthy recipients collecting $40,000-$100,000 should not. SS and Medicare should be reformed to lessen the burden on younger generations of workers.
I have suggested adjusting the COLA several times. Some of the current proposals have merit. I suggested a while ago that anyone retiring with the maximum FRA benefit not receive a COLA or at the least not for the first five years or cap the dollar amount.
Paul,
I agree, if the policy is not retroactive. I, and I’m sure many other readers here on HD structured their retirement plans decades ago based on the changes made to the Social Security changes enacted in 1983.
My wife and I have been paying our retirement expenses out of our savings for the past seven years based on the current rules in order to obtain maximum benefits with a promised annual COLA.
I’m sure I’m sounding like a broken record but don’t change the rules of the game after it has started, especially in the fourth quarter.
Every time I read about this strategy I try and get myself to understand, but I have yet to do it.
The thought of taking money from savings in the hope of receiving a larger monthly payment seven years hence and then hoping it lasts long enough to make it worthwhile simply befuddles me.
Hope it all works out as planned and beyond.
I guess I’m just a bird in the hand type person.
As a practical matter the political power of the elderly makes retroactivity highly unlikely. If I had the power I would immediately put a cap on benefits for the wealthier classes. SS should above all be an anti-poverty program, not a financial planning tool for the well-off.
The you turn it into welfare, I think breaking the link between earnings, taxes and benefits would be a big mistake especially given the design already favors lower income individuals. To maintain universal support, everyone must have a proportional stake.
I plan for the worst and hope for the best.
There are so many different ways this issue might be addressed by Congress that my plan is to sit back and react, if necessary, once the final approach is legislated. It’s very possible that none of the changes that are ultimately made even apply to current SS recipients.
Perhaps, but with only about six years left to restore the trust, this and similar fixes will have to apply to existing retirees future COLAs or significant higher taxes will apply to current workers.
The annual SS trustee report has been saying the following for over a decade.
“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way to phase in necessary changes gradually and give workers and beneficiaries time to adjust. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits”
Interestingly the trustees include members of the administration in power at any point and what they sign off on as a trustee never seems to match the position or actions of their administration. This has been true for many years. At the same time the law requires independent public trustees as well. They are supposed to provide independent oversight.
There have not been public trustees since 2015.
One thing that is on the table is to make SS 100% taxable for everyone receiving benefits.
Beyond the taxes paid toward the benefit.
I posted a similar question a while back regarding a potential future 22% cut to benefits. Many people’s sentiment was to not worry, the politicians would never let that happen. And that is probably true, still, you would be remiss to not plan for a scenario such as a COLA cap.
I still maintain that current retirees as well as current workers will have to make some sacrifices.
Dan,
As I have pointed out many times here the 1983 Social Security changes moving the full retirement age to 67 resulted in a 13% cut in benefits before we even claim. We have done our part.
Also the last increase in the social security employment tax was in 1990 when it was increased by 0.9%. That was 36 years ago. Maybe time for another bump up there?
Dave, and in addition to the FRA, we also pay tax on our SS now. I wonder if we would even be having this conversation if we would have used actuaries to determine annual payroll tax rates over the past 36 years.
I absolutely agree that it’s time to bump up employee and employer contributions, I just don’t think we should make those people do all the heavy lifting, especially those who have more recently entered the workforce. AI is telling me the combined payroll tax might need to be as high as 20% (10% employee and 10% employer) to fix funding. I think that’s a lot to ask of someone who was still in diapers in 1990.
I agree and I would add employers too, possibly a slightly higher FICA percentage than workers. Any COLA change is prospective and never guaranteed in any case. I have said many times that people retiring with the FRA max SS benefit should either not receive a COLA or not receive one for the first five years after retirement.
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