About 70 million Americans receive a monthly Social Security payment. Most of these payments are increased each year to keep pace with inflation.
A bill to increase these payments by an additional $200 per month was introduced in both the House and Senate in June 2022, but it didn’t pass before the 117th Congress closed on Jan. 3. Can Social Security recipients expect a bonus payment in March?
The Expansion Act
Senator Bernie Sanders (I-VT) reintroduced The Social Security Expansion Act to Congress last week, a bill that would boost benefits by $200 a month for everyone on the program. The legislation is cosponsored by a number of lawmakers, including Elizabeth Warren, Jan Schakowsky, and Val Hoyle, and it seeks to shore up Social Security funds by raising taxes on those who make more than $147,000 a year.
The bill would also make annual cost-of-living adjustments more generous by changing the measurement used to calculate them. It would shift to the consumer price index for the elderly, which many advocates say more accurately reflects retiree spending patterns.
The CBO has warned that Social Security’s trust fund will run dry in 2035 if no additional funds are directed to it. The Social Security Expansion Act and a number of other proposals seek to address that issue by raising taxes on the wealthiest Americans. But the program’s fate is still up in the air.
The Cost-of-Living Adjustment (COLA)
Each year, the Social Security Administration judges how much the cost of living has changed and adjusts payments accordingly. This is called a Cost-of-Living Adjustment, or COLA. It is calculated by the Bureau of Labor Statistics using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The index is designed to measure inflation for the wages of working people, not retirees. Many companies also use the CPI as a tool to help determine employee raises.
The SSA compares the average CPI-W for July, August and September of one year to the same months of the previous year to calculate the annual COLA increase. It’s not uncommon for the COLA to be higher than inflation, though.
During years with low inflation, beneficiaries may not receive any COLA bump. That’s why it’s important to keep an eye on inflation. Beneficiaries can check their COLA notices for the current year in the Message Center of their my Social Security account.
The Congressional Budget Office
A nonpartisan federal agency, the CBO provides independent analyses of budgetary and economic issues to support the congressional budget process. The Office is headed by a director who is appointed by the Speaker of the House of Representatives and President pro tempore of the Senate, on recommendations from the chairmen of the House and Senate Budget Committees.
Most Americans rely on Social Security for the majority of their income in retirement and more than half receive benefits from the program through their entire lives. The program is unique in that it provides a secure foundation of retirement protection for almost all Americans, regardless of earnings level. It also encourages private pensions and personal savings because it is not means-tested and it invests its dedicated revenues in interest-bearing Treasury securities.
Relatively modest changes could put Social Security on a more sustainable path in the coming decades, but lawmakers must act sooner rather than later. Otherwise, the program will run out of dedicated revenues in 2096.
The Motley Fool
Over 65 million Americans rely on Social Security to help them pay their bills and live comfortably. The program helps older adults, disabled people and the young survivors of deceased workers. The cost-of-living increase will boost the payments for those who receive these benefits, but it won’t solve all their problems.
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