Millions of older Americans rely on Social Security for their monthly income. For many retirees, it’s their only source of money.
However, Social Security was never meant to fully replace a worker’s paycheck. Without extra savings, many seniors struggle to afford daily expenses.
Lawmakers could make changes to help retirees manage better. Here are two key Social Security policy updates that could make a big difference if they become a priority.
1. A Better Formula for Cost-of-Living Adjustments (COLAs)
Each year, Social Security benefits get a cost-of-living adjustment (COLA). This increase is based on inflation, but it doesn’t always reflect the real costs seniors face.
If inflation rises, benefits usually increase. If inflation stays the same or drops, there’s no COLA.
The issue is that the current COLA calculation is flawed. Social Security adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
But this index tracks costs for working individuals, not retirees. Seniors spend more on healthcare, prescription drugs, and housing—expenses that aren’t properly considered in the COLA formula.
A better solution would be to base COLAs on an index designed for retirees. This could ensure that Social Security benefits keep up with the actual costs seniors face.
Although this idea has been discussed before, no action has been taken to change the system.
2. Updating the Tax Formula for Social Security Benefits
Social Security gets most of its funding from payroll taxes, but some revenue comes from taxing retirees’ benefits.
The problem is that the income thresholds for taxation are outdated. These thresholds were set decades ago and have never been adjusted for inflation.
Right now, individuals with a combined income of $25,000 or more must pay taxes on part of their Social Security benefits.
For married couples, the threshold is $32,000. Since these amounts haven’t changed in years, more seniors are being forced to pay taxes on their benefits.
Raising these income limits would allow more seniors to keep their full Social Security payments. It would also make sense to adjust the thresholds yearly, just like COLAs.
Unfortunately, lawmakers have not made this a priority, even though it would help millions of retirees.
Why Do These Changes Matter?
Retirees depend on Social Security to cover essential expenses. But with rising healthcare costs and inflation, many find it difficult to make ends meet.
A better COLA formula and updated tax rules could make a huge difference for seniors trying to stretch their benefits.
These changes would help:
- Ensure that Social Security keeps up with real-life costs.
- Allow more seniors to keep their benefits without unfair tax deductions.
- Reduce financial stress for retirees living on fixed incomes.
Read More:
- Spousal Social Security Benefits: 3 Key Rules Retired Couples Shouldn’t Ignore!
- Warning: These 5 Social Security Updates Could Affect Your Benefits!
Will These Social Security Changes Happen?
While experts have recommended these policy updates, lawmakers have not taken major steps to implement them.
Political debates and budget concerns often slow down Social Security reforms. However, as more retirees struggle financially, these changes may become a bigger priority in the future.
For now, seniors should stay informed about potential updates and consider ways to supplement their Social Security income.
While these policy changes could help, personal savings and smart financial planning remain essential for a secure retirement.
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