Social Security recipients could be affected by a number of changes to their benefits in the future, including tax increases.
It comes as a debt ceiling battle in Congress has put Social Security on the agenda over fears that payments will be delayed unless a solution is found.
Treasury Secretary Janet Yellen said today that the US economy could enter a recession if the debt ceiling is not raised before a national debt default occurs.
The problems add to the concerns of Social Security claimants, with officials also recently estimating that funding will run out in 2033 – a year ahead of schedule.
Money is running out because the Social Security Administration does not collect enough taxes to cover what it pays claimants.
If trust funds run out without reform, funding should only be enough to pay for 76% of what the benefits currently are.
For example, if you currently receive an average of $ 1,543, you might only receive $ 1,172.68 in the future.
Below, we’ve put together some other changes that could impact your cash flow.
1. Taxes on benefits could increase
Social Security benefits are currently subject to federal income tax if your combined income exceeds certain thresholds.
This could include wages, self-employment income, interest, dividends or other taxable income.
Up to 50% of your check may be taxable if your income is between $ 25,000 and $ 34,000 and you file their taxes individually.
The same rate applies if you earn between $ 32,000 and $ 44,000 and file jointly with their spouse.
Meanwhile, up to 85% of the benefits are taxable if a person has income over $ 34,000, or over $ 44,000 for a married couple.
Lawmakers could change those terms to make the system stronger, Larry Kotlikoff, a professor of economics at Boston University and president of Economic Security Planning, told CNBC.
Alternatively, income thresholds could be lowered, meaning more beneficiaries will pay taxes.
2. Social charges could increase
Another potential change that would hit the pockets of millions of Americans is a payroll tax increase.
Each month, your boss currently takes 6.2% of your salary for Social Security and himself contributes 6.2% per employee.
In 2021, these taxes only apply to wages up to $ 142,800 – but this wage gap changes every year and is up from $ 137,700 in 2020.
The limit could be increased so that workers with incomes above the threshold continue to contribute to the system.
President Joe Biden has previously suggested reapplying the payroll tax for combined income over $ 400,000.
As the salary cap is adjusted each year, the gap would eventually close.
3. Increase in retirement age
Congress is still implementing changes to the Full Retirement Age (FRA), which means it is gradually increasing from 65 to 67.
Simply moving it from 66 to 67 resulted in a 5% benefit reduction that took 40 years to take full effect, according to Joe Elsasser, founder and president of Covisum, a social security claims software company.
Congress could consider raising the retirement age again, although the implementation of this decision may prove tricky.
If you were born in 1960 or later your FRA is 67, but for others it is 66 and a specific number of months.
4. Hike to COLA
Last but not least, Social Security recipients are expected to get more money through an expected increase in the cost of living adjustment (COLA).
The latest estimate of 6% to 6.1% by a non-partisan group The Senior Citizens League is based on data through August.
The increase would be the largest since the allowance increased 7.4% in 1982.
Based on the current average Social Security benefit of $ 1,543, an increase of 6% or 6.1% would mean an increase of between $ 92.58 and $ 94.123.
Meanwhile, those who receive the maximum payment of $ 3,895 each month can expect a monthly increase of between $ 233.70 and $ 237,595.
COLA is calculated using data from the Consumer Price Index for Urban and Office Workers (CPI-W), which measures changes in the cost of popular goods and services.
Actual COLA will be announced in October and then go into effect in January 2022, so forecasts are not guaranteed.
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