The Two Huge Social Security Problems Congress Keeps Quietly Ignoring

It’s not exactly a secret that Social Security serves as a critical source of income for millions of retirees today. And without those monthly benefits, many older Americans would not be able to keep the lights on, put food on the table, or pay for the medication they need.

But Social Security is facing two major problems that lawmakers seem to be dragging their feet on. Here’s what those problems entail and how Congress can fix them.

1. A pending revenue shortfall

In the coming years, Social Security expects to owe more money in scheduled benefits than it collects in payroll tax revenue. Once the program’s trust funds run out of money, Social Security might have to broadly cut benefits unless lawmakers find a way to shore up its finances.

Those cuts won’t necessarily be small ones. Seniors could see their benefits reduced by more than 20%, which would push a lot of people into poverty in the absence of lawmaker intervention.

Now the good news is that solutions do potentially exist to prevent Social Security cuts. But one thing that’s compounding the problem is that lawmakers seem to be dragging their feet.

Social Security could be a mere six years away from potential benefit cuts. Yet so far, there’s not a single solution that seems to have garnered bipartisan support.

Of course, preventing Social Security cuts is not an easy task. And the solutions available to stave off cuts have their own drawbacks. But lawmakers do need to act quickly if they want to prevent Social Security cuts — and the massive crisis that could erupt as a result.

2. A flawed system for calculating COLAs

Social Security benefits are eligible for a cost-of-living adjustment (COLA) every year. COLAs are supposed to protect benefits from losing buying power due to inflation.

The problem is that those COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). And the CPI-W does not do an accurate job of capturing the costs Social Security recipients commonly face.

Social Security recipients tend to spend differently than the broad population. They often spend less money on transportation but more money on categories like healthcare.

In recent years, medical costs have risen at a faster pace than broad inflation. That’s caused Social Security benefits to lose buying power over the years despite getting boosted with annual COLAs.

One potential solution is to replace the CPI-W with the Consumer Price Index for the Elderly (CPI-E) as the basis for COLA calculations. Advocates say that index more accurately represents seniors’ costs and could lead to more generous raises.

The main issue is that the CPI-E is considered more of an experimental index. Critics argue it uses smaller sizes than broader inflation measures and therefore doesn’t necessarily meet accuracy standards.

But if lawmakers don’t make changes to the current COLA formula, Social Security recipients will continue to lose buying power year after year. That could spur a different type of poverty crisis, even if it’s not on the same level as the crisis a broad reduction in benefits would likely lead to.