The 3 Changes Congress Will Make to Social Security - and How to Prepare

In the past year, Congress has introduced seven different plans to overhaul Social Security.

Normally, the words "Congress" and "seven different plans" don't inspire a lot of confidence that anything will get done.

Social Security
Bernie Sanders, co-author of one of seven Social Security plans

But this time, we can predict exactly what Congress is going to do...

That's because each of these Social Security plans - all seven of them - has a common thread. Buried beneath complex benefit calculations and tax rate modifications are the same three changes, which we'll detail below.

These changes to Social Security are likely coming soon. The $2.8 trillion sitting in the Social Security Trust Fund will start running out in just three years' time.

Here's a look at what's coming for Social Security - and how you can prepare...

Social Security Change No. 1: Adjust How COLA Is Calculated

The method for calculating cost-of-living adjustment (COLA) for Social Security benefits is a complete joke, and every single Social Security reform plan proposed in the last year wants to change it.

Right now, COLA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W tracks the cost of goods purchased by urban wage earners and clerical workers. Read that again: wage earners and workers. Precisely the people who aren't receiving Social Security.

That means the COLA for Social Security beneficiaries is based on the cost of living of a totally different population. This is a problem because the elderly and the disabled use certain goods and services more than wage earners do.

Take medical care, for example. Medical prices might have a severe impact on the cost of living for Social Security beneficiaries, but they wouldn't be reflected as heavily in the CPI-W.

The result? A COLA that doesn't meet the needs of the beneficiaries.

Currently, there are two proposals to fix the problem.

  1. Base the COLA on the Consumer Price Index for the Elderly (CPI-E).

    As the name suggests, the CPI-E is calculated based on the expenditures of people over 62 years of age (as well as their spouses and immediate family members).

    Reps. Peter DeFazio (D-OR), Ted Deutch (D-FL), John Larson (D-CT), Al Lawson (D-FL), and Linda Sanchez (D-CA), as well as Sens. Bernie Sanders (I-VT) and Mazie Hirono (D-HI) all support using the CPI-E in their Social Security plans.

    The Social Security Administration expects that using the CPI-E would increase the COLA.

  2. Base the COLA on the chain-weighted Consumer Price Index for All Urban Consumers (C-CPI-U).

    Instead of targeting a very specific population, the C-CPI-U tracks the spending of as broad a population as possible: roughly 90% of citizens. What's more, this particular index accounts for the fact that spending habits change with the price of goods. For example, when gas prices go up, people tend to use less gas.

    Rep. Sam Johnson (R-TX) and the Bipartisan Policy Center's Commission on Retirement Security and Personal Savings both suggest using the C-CPI-U to calculate the COLA.

    The Social Security Administration expects that using the C-CPI-U would actually reduce the COLA.

Social Security Change No. 2: Support the Working Poor

Currently, if a U.S. citizen works for at least 35 years, earns the national minimum wage every year, and retires at 67, Social Security will give that person $980 a month. The poverty line is $1,005 a month.

That's the reward for working 40 hours a week, every week, for 35 straight years.

If someone struggles to find work, works fewer than 35 years, or isn't able to work a full 40 hours each week, their monthly benefit shrinks further.

In fact, the minimum Social Security payment for somebody with 30 years of work is $832.20 - less than 85% of the poverty line. For someone with 25 years of work, it's $623.60. That's 62% of the poverty line.

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Nearly all of the recently submitted Social Security plans address this problem in one or both of the following ways:

  1. Increase benefits for low-income workers.

    Most plans include a provision that would essentially increase monthly benefits by anywhere from $26 and $211 for poor Americans, depending on the plan. Four of the plans would give these Americans a monthly $78 boost or better.

    Of course, these benefits start to decrease for those who have worked less than 35 years. In fact, the Bipartisan Policy Center's plan requires citizens to work at least 40 years to get the most out of their benefits.

    What's more, because of how the benefits are calculated, the very poorest Americans (those under the poverty line) would also see a smaller increase on their Social Security checks.

    That's why most of these plans have the following provision...

  2. Increase the minimum Social Security payment.

    As stated above, 30 years of paying into Social Security doesn't even guarantee you a benefit above the poverty line. Many of the Democrats' plans provide a simple fix:

    Change the new minimum to 125% of the poverty line for anyone who's worked 30 years or more.

    Republican Sam Johnson's plan is slightly more complicated but even better for the poorest Americans. Under his plan, retirees who have worked for 35 years would see a minimum benefit of 139.5% of the poverty line - or $1,432 a month in 2017.

    What's more, any American who works at least 20 years would receive a $1,002 monthly benefit in 2017 - more or less equivalent to the poverty line.

These provisions are about as bipartisan as it gets. Republicans, Democrats, and the Bipartisan Policy Center all increase benefits for the working poor in their plans. One of the seven plans only increases benefits, one only institutes a higher minimum payment, and four do both.

In fact, the only plan that doesn't increase benefits or establish a new minimum is that of Rep. Deutch and Sen. Hirono, and that might be because their plan only has two provisions. The first is to change the COLA.

And the second is the only way to keep the Social Security Trust Fund solvent...

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Social Security Change No. 3: Demand More from the Wealthy

In 2017, Americans only pay Social Security tax on their first $127,200 of income. That means that the wealthiest people pay a lower percentage of their income to the Social Security Administration than the average American.

If you think that sounds unfair, you can find at least seven legislators who will agree with you.

The most generous legislators give a break to the "upper middle class," only reinstating the tax on income over $250,000 or $400,000. Most even allow this money to count toward benefit calculations, meaning that the wealthy would enjoy slightly higher Social Security checks - but not enough to make up for the increased taxes. (Sen. Bernie Sanders doesn't want the rich to see a cent of their increased contributions in their benefits and even proposes an additional 6.2% tax on investment income.)

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The only legislator who doesn't touch the maximum taxable income is Rep. Johnson, but don't think that the wealthy might get off easy; he rips their benefits to shreds. Under his plan, someone who has earned the taxable maximum or more for at least 35 years would receive a benefit of $1,897 every month (in 2017 dollars) if he or she starts collecting benefits at the age of 69. Compare that to the current maximum benefit of $2,687, and the richest Americans lose out on nearly $800 in Social Security benefits a month in 2017.

You could also compare it to Johnson's aforementioned minimum tax rate for those who have worked 35 years: $1,432. If his plan were enacted this year, the CEO of Wal-Mart's Social Security check would only be $465 higher than that of his poorest employee.

When it comes to Social Security, we know the rich don't have any friends in Washington. And that the working poor will see some sort of improvement.

Despite everything we know about the future of Social Security, there's one question we don't have the answer to...

The One Thing We Don't Know

Will the Social Security program stay solvent?


The Social Security Trust Fund Is Just a Stack of IOUs in a West Virginia Filing Cabinet

Each of the seven plans stretch the Social Security Trust Fund beyond its predicted 2034 depletion date, but only three of them keep the program solvent indefinitely. In fact, two of the plans would deplete the Trust Fund before 2050!

A depleted Trust Fund doesn't mean that the Social Security Administration closes its doors, but it does mean that benefits would shrink substantially. So you shouldn't rely on the government for your retirement, if you can help it.

Instead, you should take your future into your own hands.

And we can help.

How to Prepare for the Future of Social Security

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