Last Thursday, the OASDI Trustees released their much-awaited annual report assessing the current state and future financial outlook of the combined Social Security trust funds.
Here are the critical takeaways from the report concerning your Social Security benefits:
Social Security will remain solvent until 2034.
The solvency clock is ticking and the first question on everyone’s minds concerning the trustees report is how much time is left on that clock?
According to the report, the trustees estimate Social Security will be fully funded for the next 17 years–an estimate that hasn’t changed since 2016’s report.
The good news is, as far as the overall health of Social Security goes, things haven’t changed for the worse in the last year. The Trust Fund will remain solvent until 2034 as previously projected.
The bad news, of course, is things haven’t gotten better. Congress has yet to pass the Social Security reform legislation we desperately need to extend this date and ensure seniors receive their full benefits well past the next 17 years.
As it stands now, with no intervention before 2034, the payroll tax will only provide enough income to fund 77% of seniors’ Social Security benefits.
The sooner Congress acts to repair the solvency of our Social Security program, the more options we’ll have, the longer we’ll have to phase those solutions in, and the softer these changes will impact Americans. If the unchanged 2034 estimate tells us anything, it should tell us we are unquestionably on track to see significant benefit reductions in 17 short years if we don’t work quickly and aggressively to change it.
The maximum taxable wage cap will increase to $130,500.
The maximum taxable wage cap refers to the yearly income ceiling at which earnings are subject to the Social Security payroll tax. All earnings above that ceiling aren’t factored into Social Security contributions.
Right now, that income cap is $127,200, meaning a worker making $130,000 per year only pays FICA taxes on the first $127,200 of those earnings. The remaining $2,800 isn’t taxed for Social Security.
By next year, that same earner will be paying FICA taxes on 100% of their yearly earnings.
The maximum taxable wage cap is widely criticized by Social Security advocates. Approximately 6% of Americans earn in excess of the current cap each year. The other 94%–the vast majority of Americans–contributes on every dime they earn.
Although many of the earners included in that 6% make only slightly more than the cap, that figure also includes the highest earners in the country. In 2009 more than 230,000 tax returns filed with the IRS reported incomes of $1,000,000 or greater. These earners only contribute 10% of what they make.
Social Security advocates argue that it’s unfair for everyone but the wealthiest Americans to contribute on all of their earnings–and that if the highest earning Americans did the same, Social Security’s solvency would be extended by several decades without any impact on most workers.
Social Security’s cost-of-living adjustment (COLA) increases to 2.2%.
After years of low or no Social Security COLAs, beneficiaries finally get a boost worth noting.
The trustees announced a 2.2% COLA for seniors next year, by far the biggest COLA since 2011.
Currently, beneficiaries receive 0.3%–in terms of dollars, this amounts to about $4 or $5 extra per month. Prior to that, beneficiaries received no COLA increase at all.
While 2.2% is a breath of fresh air compared to the last five years of negligibly low COLAs, it still only translates to about $58 for most beneficiaries.
The 2017 Social Security Trustees report contains much more than just these facts. Among other information about the status of the Trust Fund, it also contains important projections dealing with Medicare’s solvency and what seniors can expect to pay for their coverage in 2018.
To read the actual report or a summary of the report, visit the Social Security Administration’s website or click right here.