Although Social Security has been around for many years, its rules are not set in stone. From time to time, bigger changes can come down the pike that work to seniors' advantage. Here are three such changes that could have a very positive impact.
1. A new means of measuring COLAs
Each year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA, which is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is actually a subset of the Consumer Price Index for All Urban Consumers (CPI-U), which is considered the benchmark for measuring inflation.
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The problem, though, is that the CPI-W is not very reflective of the costs seniors commonly face. Think about the lives urban wage earners lead. It's easy to see why they might differ from those of retirees, and why the two groups might face very different expenses.
If the Social Security Administration were to get the green light to base COLAs on senior-specific costs, those raises might end up giving beneficiaries a lot more buying power. In fact, advocates have long been calling for COLAs to be based on a senior-specific index known as the CPI-E, or Consumer Price Index for the Elderly. That index would no doubt take factors like healthcare expenses into account, which tend to eat up a lot of seniors' income.
2. Higher income thresholds for taxing benefits
Many seniors are surprised to learn that Social Security benefits are subject to taxes based on provisional income, which is calculated as the sum of non-Social Security income plus 50% of annual benefits. Unfortunately, the provisional income thresholds at which taxes on benefits kick in are quite low.
Seniors who are single with a provisional income of $25,000 or more face taxes on some of their benefits. The same holds true for married couples with a provisional income of $32,000 or more.
These thresholds were established decades ago and have not been lifted in years, despite inflation. If these thresholds were to increase, it would help many seniors retain more of their Social Security income -- and better make ends meet.
3. More time to accrue delayed retirement credits
Social Security recipients can claim their monthly benefits in full at full retirement age, or FRA, which is either 66, 67, or somewhere in between. From there, those benefits get an 8% boost for each 12-month period recipients delay their filings.
But come age 70, seniors can no longer accrue the delayed retirement credits that cause their benefits to increase. As such, 70 is considered the latest age to claim Social Security, even though seniors can technically opt to delay their filings even further.
If the rules were to change so as to allow seniors to continue accruing delayed retirement credits until age 72, it could give many retirees a chance to attain more financial security by locking in a higher monthly benefit for life. Of course, this would no doubt come at a cost to Social Security, but it could also be a lifeline for seniors who didn't get an opportunity to save for retirement during their working years.
Are big changes in the works?
Changing the way COLAs are calculated, making changes to provisional income thresholds, and giving seniors more time to accrue delayed retirement credits could lead to an uptick in retirement security on a national level. We should hope that lawmakers opt to fight for these changes in the coming years.
