As of February, more than 62 million people each month were receiving a guaranteed monthly payout from Social Security. Of these 62 million beneficiaries, over 42 million were retired workers, 62% of whom, according to data from the Social Security Administration (SSA), are reliant on their monthly check to account for at least half of their income. In other words, without Social Security, senior poverty rates in the U.S. likely would be considerably higher than they are now.
Social Security's woes mean potentially big problems for seniors
Despite the positive role Social Security has played in keeping millions of seniors above the federal poverty line, the program itself isn't in the best shape. The Social Security Board of Trustees report, released last summer, forecast that more would be paid out to beneficiaries than is collected in revenue by 2022. Just 12 years later, in 2034, some $3 trillion in asset reserves will be completely exhausted, leaving Social Security in a major bind.
If there's a silver lining for seniors and today's working Americans, it's this: Social Security isn't going anywhere. Since the bulk of revenue generated for the program comes from its payroll tax on earned income, money should continue to flow into Social Security to be disbursed as long as people keep working.
Unfortunately, the survival of Social Security isn't the same as its sustainability. Without these asset reserves to cushion the program, across-the-board benefit cuts of up to 23% may be needed to sustain payouts through 2091. That's not exactly a rosy forecast for the greater than three out of five seniors counting on Social Security for at least half of their income.
Furthermore, the purchasing power of Social Security benefits has been declining for some time. An analysis from The Senior Citizens League found that the purchasing power of Social Security dollars has fallen by 30% since 2000. In other words, what $100 in Social Security benefits used to buy in 2000 now only purchases about $70 worth of goods and services.
This is a roundabout way of saying that Social Security's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers, isn't adequately representing the inflation seniors are dealing with. Therefore, the annual "raises" being passed along aren't matching the inflation seniors are facing with regard to medical and housing costs.
This Social Security proposal is all about putting money in seniors' pockets
Though Congress hasn't made any major changes to the Social Security program in decades, it hasn't stopped lawmakers from introducing solutions from time to time. This past week, three Senators -- Ron Wyden (D-OR), Sherrod Brown (D-OH), and Bob Casey (D-PA) -- introduced a bill, "The Elder Poverty Relief Act," which focuses on putting more money into the pockets of elderly Americans and low-income beneficiaries who are receiving Social Security or Supplementary Security Income (SSI) benefits.
The proposal outlines a plan to boost the monthly benefit checks of three groups by $85 a month ($1,020 a year), with an inflationary increase to the benefit of approximately 4% per year. This boost, officially known as the Poverty Relief Benefit, would be paid to:
- Social Security recipients aged 82 or older, as well as SSI recipients who are at their full retirement age (which is between age 66 and 67).
- Social Security and SSI recipients who've received benefits for at least 20 years.
- Social Security beneficiaries at full retirement age who are receiving low monthly benefits, which the proposal outlines as $944 a month. This figure would be adjusted annually for inflation.
The trio of Senators suggests that senior poverty rates would be reduced by 25% in 2030, lifting approximately 420,000 seniors out of poverty and providing a monthly benefit increase to almost 14 million eligible seniors. Considering that older Americans above the age of 80 face a higher poverty rate than seniors under 80 years old, this bill appears to be a step in preventing the elderly poverty problem from getting even worse.
The Elder Poverty Relief Act's potentially fatal flaw
On paper, the idea of buffering monthly payouts to older Americans sounds great. Unfortunately, most legislation has its drawbacks, and The Elder Poverty Relief Act is no different.
The issue here is simple: Social Security has a long-term (75-year) cash shortfall estimated to be worth $12.5 trillion. What this means is the program needs an infusion of new revenue to offset this $12.5 trillion shortfall in order to keep benefits from being cut by up to 23% in 2034. What Senators Wyden, Brown, and Casey propose isn't the addition of new revenue so much as an acceleration of a cash outflow from Social Security. In short, it could accelerate the time line by which Social Security's asset reserves are depleted.
I'm not suggesting Wyden, Brown, and Casey's proposal has no merit. Older American poverty is a real issue, and a higher monthly payout could help resolve it. Unfortunately, with Congress consistently at an impasse over how to fix Social Security, expanding benefits in any form is an idea that should be off the table until the estimated $12.5 trillion long-term shortfall is dealt with.
And there's the crux of the matter: Democrats and Republicans both have a workable solution to fix Social Security -- and because they do, neither side will back down and compromise with the other party.
Democrats prefer raising the payroll tax on the wealthy, who are less likely to be reliant on Social Security income when they retire anyway. Doing so would raise the revenue needed to avoid a benefits cut by 2034. Meanwhile, the GOP proposes raising the full retirement age -- the age workers become eligible to receive 100% of their payout -- to account for increased longevity. Doing so would reduce the program's long-term expenditures.
Both approaches work, but they'd work better if both parties came together to find a middle ground between the two proposals. Until lawmakers in Congress come to grips with the fact that they need at least the partial support of the other party to fix Social Security, no proposals, including The Elder Poverty Relief Act, are likely to gain much traction.