2 Critical Moves Lawmakers Must Make For Social Security’s Survival

Today, millions of older Americans rely on Social Security for monthly income, and for many retirees, it’s their only source of financial support.

However, Social Security was never designed to replace a full paycheck. Without personal savings or additional retirement income, living on Social Security alone often means making tough financial sacrifices. That’s why improving financial education — especially around retirement planning — is more important than ever.

But there are also steps lawmakers could be taking to make it easier for retirees to manage on their Social Security checks – whether they constitute all of their income or just a significant portion. Here are two key policy changes that could do a world of good for seniors if lawmakers decide to prioritize them.

1. A Better Formula for Calculating COLAs

Social Security includes an automatic cost-of-living adjustment, or COLA, designed to help benefits keep pace with inflation. That doesn’t mean payments rise every year. If prices increase, benefits usually get a boost. But if inflation stays flat or drops, retirees receive no adjustment at all.

The bigger issue is that COLAs haven’t kept up with the real expenses seniors face. Because of the way they’re calculated, retirees have been losing buying power for years — a problem that will only continue without reform.

Right now, Social Security bases its COLA on third-quarter changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. But this index tracks the spending patterns of workers, not retirees, and often fails to reflect the rising costs seniors deal with most.

A better solution would be to calculate COLAs based on a senior-specific index — that one would, for example, put a lot of weight on healthcare, since it tends to be one of the largest expenses retirees have to bear. The idea of a change to the COLA formula has been brought up before. But so far, there’s been nothing done to move this shift forward.

2. An Updated Formula for Taxing Benefits

While most Social Security funding comes from payroll taxes, the program also collects revenue by taxing some retirees’ benefits. The problem is that the income thresholds determining who gets taxed are extremely outdated. They were set decades ago and have never been adjusted for inflation or wage growth.

Today, individuals with a combined income of just $25,000 — and married couples with $32,000 — can owe taxes on part of their Social Security benefits. Combined income includes adjusted gross income, tax-free interest, and half of a person’s annual Social Security benefits.

Raising these thresholds would allow more seniors to keep their full benefits, and indexing them to inflation each year would make the system far more fair. Unfortunately, lawmakers haven’t shown much interest in updating these limits, even though doing so would benefit a large portion of retirees.