Social Security COLA gets a big boost- here’s how much
The Social Security Act (SSA) was signed into law by then-President Theodore Roosevelt on August 14th, 1935. In addition to several provisions for the general welfare, the new Act created a social insurance program designed to pay retired workers aged 65 or older, a continuing income after retirement.
As per www.ssa.gov, taxes were collected for the first time in January of 1937, and the first one-time lump sum payments were made that same month. What many people did not know at the time is the average life expectancy in 1935 for men and women was 59.9 and 63.9 respectively. Roosevelt must have figured few people would live long enough to collect.
Social Security is the largest social program in the USA. Last week the Social Security Administration (SSA) announced that retirees will receive a cost-of-living (COLA) adjustment of 8.7% starting January 1st, 2023. This marks the highest boost since 1981. While retirees are celebrating this relief from rising prices due to inflation, this does not bode well for the long-term future of social security!
Social Security originally did not adjust benefits to account for increases in the cost of living. This changed in the 1970s when there was rampant inflation. Congress instituted automatic cost of living adjustments (COLAs) each year calculated in the fall and starting in January of the following year.
What this equates to is an average of about $145 extra per month for SSI recipients. This will positively affect close to 70 million people or 1 in 5 households. Total Social Security payments in 2022 will cost nearly $1.3 trillion dollars! It is questionable how much this will help with necessities such as eggs, chicken, milk, and bread costs which have increased by 30.5%, 17.2%, 15.2%, and 14.7% respectively.
To give you a frame of reference of how much $1.3 trillion is, the U.S. debt has ballooned to $31 trillion. The Biden Administration spent approximately $3.1 trillion during his first year in office; $1.9 trillion on the American Rescue Plan and $1.2 trillion on the Infrastructure Bill.
The 8.7% Social Security cost of living adjustment wouldn’t be a problem if wages kept up because Social Security is a “pay as you go” program, meaning that benefits paid out next year will come from payroll taxes collected from workers next year. If wages grow at the same rate as inflation, extra taxes collected from workers should be enough to cover the extra costs.
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The problems are:
To name a few, there are several potential solutions to this problem that could be combined or utilized individually to help make Social Security solvent:
My take on this is that there is no reason that middle-income and high-income Americans should be relying on Social Security as a primary source of retirement income. In other words, Social Security income should be considered gravy or extra money in addition to traditional retirement income vehicles such as 401k’s, 403B’s, IRA’s (Individual Retirement Accounts) Annuities, Stocks, Bonds, and Mutual Funds, etc.
At this rate, there is no guarantee that Social Security is going to be around indefinitely! If you are a teenager or in your 20’s, 30’s, 40,s or even 50’s, you still have time to put money away. Start by saving 1% of your income per year or add an additional $1% per year if you are already saving. Compound interest over time is powerful! You will be amazed at how fast your retirement accounts will grow!!
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