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Social Security: The Surprising Push to Make Your Benefits Bigger


U.S. Capitol. Image source: Wikimedia Commons.

For years, Social Security has faced a looming financial crisis that has future recipients fearful that they'll have to accept smaller monthly payments than they'd hoped. Surprisingly, though, a growing group of lawmakers in Congress are working to raise Social Security benefits, and if they're successful, the income of current and future retirees could see a huge boost. Many Americans may wonder how the government can afford expanded benefits and whether they'll have to pay more in Social Security taxes or other taxes.

Turning the tables on benefit reduction
For years, most of the discussion surrounding Social Security involved ways to make benefits less costly for the government, even though politicians have tried to avoid the appearance of actually reducing payouts. For instance, proposals to change the calculation method for annual cost-of-living adjustments to Social Security payments weren't designed to cut benefit levels outright, but rather to slow the rate of growth in monthly payments to retirees.

But over the past year, a number of proposals have gone the other way. One such benefits-boosting proposal, from Democratic senators Patty Murray of Washington and Mark Begich of Alaska, would expand eligibility for benefits to divorced spouses and boost survivors' benefits for two-income earning families. More recently, legislation introduced by Democratic Rep. John Larson of Connecticut in late July proposed even more sweeping changes to Social Security.


Source: Social Security Administration.

The cost-benefit analysis
Specifically, the Larson bill would increase benefits immediately by about 2%, or roughly $300 per year for the average recipient. It would also accelerate future cost-of-living adjustments by using a Consumer Price Index that focuses more on the expenses that older Americans incur. In addition, the income levels at which Social Security becomes taxable would double for single filers and more than triple for joint filers, leading to greater after-tax benefits for retirees.

Perhaps most notably, Larson's proposal would establish a new floor on Social Security benefits for low-income workers. In addition to current benefits based on earnings history, a minimum benefit level equal to 125% of the poverty level would apply to everyone. That could result in substantial increases for the lowest-income tier of workers, even though Social Security benefits are already progressive in nature and replace a much higher percentage of earnings for low-income retirees than they do for higher-income earners.

Not all the proposals to increase Social Security benefits come with funding strategies, but the Larson bill offers a range of possible options to finance its benefit increases. Larson's proposal would gradually boost the payroll tax by 1 percentage point over the next 20 years, and it would impose Social Security taxes on earnings above $400,000, overriding the current $117,000 wage limit for those high-income earners. But it would also consider the more controversial measure of investing the Social Security Trust Fund in assets other than government bonds, with up to 25% of reserves available for a "broad-based diversified index fund" that would presumably include stocks. Larson would only implement such a move if actuarially necessary, but even putting the issue on the table is a departure from most reform ideas in the past.

Source: Moodboard Photography via Flickr.

Do these proposals stand a chance?
So far, most of the proposals to expand Social Security have been strikingly partisan, with a large group of Democrats rallying behind expansion plans. Given current projections that Republicans will almost certainly maintain control of the House and could well take the Senate majority from the Democrats, any Social Security bills that don't have bipartisan support are unlikely to pass.

But if Social Security remains in the spotlight, then the 2014 elections could act as a referendum on the willingness of the American public to embrace expanded benefits. If candidates who campaign on Social Security issues prove successful come November, you can expect even more ideas on expanding benefits for retirees in the run-up to the next presidential election in 2016.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 22, 2014, at 9:54 AM, gadfly1000 wrote:

    Among the many sensible ideas here is raising the income level that kicks in taxation of benefits.

    This has never been indexed since taxation began in 1983, 31 years ago! That means more and more people have been subject to income tax simply because of inflation.

    (It should be noted, however, that all income tax collected on Social Security retirement benefits go straight back to the Social Security Funds.)

  • Report this Comment On August 22, 2014, at 5:05 PM, donniemanning wrote:

    we did not save enough to even invest 15000.00 and we are already disabled and ss aged I recieve 714.00amonth and my wife only 415.00 we are barely surviving .HELP

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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