It seems like every day something is in the news that points out how much more money is coming out of your pocket. For people over a certain age in this country living on a fixed income, budgets have been getting tighter and tighter. But now there may be some relief for retirees: The Social Security Administration plans to boost benefits by 8.7% starting in January, the biggest increase in more than 40 years.
Professor William Chittenden, associate dean for graduate programs and an associate professor of finance in the McCoy College of Business Administration at Texas State University, told Texas Standard that though the increase is significant, it doesn’t solve the problem of funding for the program that Congress and politicians are running out of time to solve.
This transcript has been edited lightly for clarity:
Texas Standard: The 8.7% increase is said to be a historic move from the SSA. How so, and why now?
William Chittenden: Well, it is the highest increase in the cost-of-living adjustment for Social Security since 1981. And it’s the fourth highest we’ve ever seen since cost-of-living adjustments were introduced for Social Security in 1975. So the reason is because we’ve had high inflation, and inflation over the last year, as measured for Social Security recipients, is at that 8.7%.
Will these increases be the same across the board?
They are same across the board for all Social Security recipients. It will be effective in December, so they’ll see it in their Jan. 1 check.
How far will these increases go to helping folks? I mean, will this make a difference? Are there a lot of people counting on this one check month-to-month?
There’s a large portion that Social Security is their primary means of retirement income. So for those individuals, absolutely, this is going to be important for them. But again, the purpose of the cost-of-living adjustment isn’t to give folks really any more purchasing power. It’s just to allow them to keep up with inflation so they can buy the same things that they bought before. And given, you know, the increases in the cost of food and fuel, etc., this is, at least in theory, to offset that. But for many, many folks, their own personal inflation rate has been much higher than 8.7%.
Problems with the Social Security fund have long been predicted. In fact, I was reading somewhere that according to the latest Social Security and Medicare trustees report – that was released back in the summer, I guess – the fund won’t be able to pay benefits starting in 2035. How much does this cost-of-living adjustment affect the fund and its solvency?
Well, it’s going to affect its solvency, but that’s in many ways a separate issue. And assuming that the trust fund does run out in that time, it doesn’t mean that they won’t be able to pay benefits, but they won’t be able to pay the full benefits. Currently, the revenue that comes into Social Security only covers about 75% of their expenditures. So unless Congress and the White House take some type of action between now and then, all of a sudden grandma’s Social Security checks are going to be cut by 25%.
Of course, we’re talking about more than 10 years down the line, right?
Correct. But the longer we wait, the more painful it’s going to be. And there’s only two real simple solutions. One is Social Security needs to increase revenue. There are a couple of ways they can do that: increase taxes, or lift the cap – which has been discussed – on the annual income that’s subject to Social Security. Right now, it’s ballpark $160,000 or so is where once you earn above that, you don’t pay any more in Social Security for the year. And so by lifting that, that could eliminate a lot of that gap that we’re going to see.
So not a lot of attractive choices, is what it sounds like, for politicians who are dealing with it.
No, it’s not popular for politicians, but the math doesn’t lie. You either have to raise taxes or you’re going to have to cut the spending, which means cutting Social Security benefits. And neither of those are attractive politically.