In 2022, retirees will receive a 5.9% Social Security Cost of Living Adjustment. COLAs are benefit increases seniors get to help avoid a loss of buying power due to inflation. When the consumer price index shows prices are rising, seniors get one of these adjustments for the subsequent year.
The 5.9% COLA is the largest retirees have received in decades, but one lawmaker believes that even such a big benefits bump is insufficient to ensure older Americans don't face financial struggles. Rep. John Larson (D-Conn.) has once again introduced a proposal that would provide both an immediate additional benefits increase for seniors and change the way COLAs are calculated going forward.
Here's what you need to know about his plan.
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This legislation would result in a larger Social Security benefit
Larson recently announced the latest version of his Social Security 2100 proposal to address the fact that retirement benefits haven't actually kept pace with inflation and have left millions of seniors still living in poverty. The Social Security 2100 Act, if it was signed into law, would:
- Immediately increase Social Security benefits by 2% for current and new beneficiaries. This increase would be on top of the 5.9% COLA coming in 2022 and would help address the retirement crisis in the U.S. by ensuring seniors get more guaranteed income immediately.
- Change the COLA formula: Currently, the cost of living adjustment for seniors is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Act would change this to use a different index, dubbed the Consumer Price Index for the Elderly (CPI-E), which better tracks price changes that seniors experience since retirees have different spending habits than urban wage earners and clerical workers.
- Set a new minimum benefit. While Social Security has a benefit minimum, it's outdated and no new retirees receive it because it's fallen so far behind. The Act would set the new minimum at 25% above the poverty level and would be tied to wage growth to ensure it never falls behind again.
In order to fund these changes and shore up the existing Social Security trust fund, The Social Security 2100 Act would impose new Social Security taxes on wealthy Americans.
Currently, Americans pay Social Security taxes on income up to a "wage base limit," which is set at $147,000 in 2022. Anyone who earns income above that stops paying Social Security taxes (and also doesn't get credit for additional income when retirement benefits are calculated).
The Act would impose a new payroll tax on income above $400,000 but wouldn't increase retirement benefits for those paying the new taxes. As a result, more money would be available to provide for other retirees.
It's unclear if this proposed legislation will ever be voted on by Congress. And passing it would likely be an uphill battle. But several of the proposals are similar to those made by President Joe Biden on the campaign trail, so it's possible a serious effort could be made to sign the Social Security 2100 Act into law -- especially if Democrats retain control of Congress or increase their majorities after the 2022 election.
Current and future retirees should watch its progress and consider contacting their member of Congress to show their support for the legislation if they believe retirees need more help in achieving financial security in their later years.
