President Biden's Social Security Plan: Impact on Your Future Benefits

Explore President Biden's proposed changes to Social Security, from income tax adjustments to COLA calculations. Learn how these reforms may affect your retirement plans.

Sep 4, 2023 - 08:24
Sep 4, 2023 - 08:25
President Biden's Social Security Plan: Impact on Your Future Benefits
President Biden's Social Security Plan: Impact on Your Future Benefits

As the Social Security Old Age and Survivors Insurance Trust (OASI) faces depletion by 2033, President Joe Biden has proposed a comprehensive four-point plan to shore up the trust fund and address the $22.4 trillion funding shortfall highlighted in the 2023 Trustees Report. If not addressed, this shortfall could lead to benefit cuts of up to 24% for retirees starting in 2033.

Here's a breakdown of Biden's proposed changes and how they might affect you:

1. Implementing a Payroll Tax on Income Over $400,000:

  • Currently, earnings up to $160,200 are subject to a 12.4% payroll tax, while earnings above this threshold are not taxed for OASI.

  • Biden's plan aims to introduce a new tax on earned income above $400,000, leaving wages between $160,200 and $400,000 untaxed.

  • This change primarily impacts high earners and corporate executives with substantial retirement savings.

2. Changing the COLA Calculation Method:

  • Social Security benefits receive annual adjustments based on inflation through Cost of Living Allowance (COLA).

  • The current COLA calculation relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which may not accurately reflect retirees' lifestyles and expenses.

  • Biden suggests shifting to figures tied to the Consumer Price Index for the Elderly, potentially providing more financial relief to retired Americans.

3. Increasing the Primary Insurance Amount (PIA) for Certain Age Groups:

  • The PIA determines the amount of Social Security benefits based on factors like the age at which you start claiming benefits and your Average Indexed Monthly Earnings (AIME).

  • Biden's proposal seeks to raise the PIA for Americans aged 78 to 82, particularly benefiting those facing rising expenses, such as healthcare, later in life.

4. Enhancing the Special Minimum Benefit for Low-Wage Workers:

  • Low-wage workers currently receive a special minimum benefit, regardless of their earnings during their working years.

  • In 2023, a lifetime low-earning worker would receive just $12,402 in annual Social Security benefits, equivalent to $1,033.50 per month.

  • Biden's plan aims to increase this minimum benefit to 125% of the federal poverty level for individuals. For instance, in 2023, eligible recipients would receive $1,518.75 per month with this adjustment.

It's worth noting that the likelihood of this plan passing Congress is uncertain. Achieving a Social Security overhaul would require bipartisan support, and so far, Democrats and Republicans have not reached a consensus on how to both strengthen Social Security's finances and improve benefits for those who need them most.

Also Read: President Joe Biden to Spotlight Labor Unions Role at Philadelphia's Labor Day Parade

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