2021: Looking at the Future of Social Security Benefits

The COVID-19 pandemic has severely disrupted Social Security which had already been falling short for years due to persistent wage inequality and political inaction.  The current pandemic and economic downturn have only accelerated the shortcomings of Social Security’s long term-solvency.[1] Social Security’s actuary has projected that based on the current economic climate the retirement and disability funds will be exhausted by 2034.[2] Though exhaustion does not indicate a complete stoppage of benefit payments, it does mean that Social Security would only have enough income to meet roughly 80% of promised benefits.[3]  While such news is certainly alarming, there is potential to regain control and stop the shortfall.

With a new year and a new administration, it is imperative that Social Security funding is a priority. As a candidate, Biden issued a comprehensive plan to strength Social Security, and address the solvency problem. Currently, the tax of 12.4% is shared equally by employees and employers and is capped at a lower wage which is adjusted annually for inflation.[4] For 2021, the cap is $142,800.[5] This cap has allowed for any income above the cap amount to escape the Social Security tax, and has aided in the vast wealth inequality that we experience in the United States.

Biden’s plan proposes shoring up the program’s finances by adding a new tier of FICA contributions for higher earners.[6] This would include applying the payroll tax to wage and salary income above the $400,000 threshold.[7] This tax hike would hit less than 1% of earners initially and would never affect more than the top 6% of earners.[8]  The ultimate goal would be to shrink the tax-free gap between $142,800 and $400,000 over the coming decades until it is eliminated entirely.[9] This plan is expected to reduce poverty rates for retirees and people with disabilities and improve the program’s finances.[10] The proposed plan also provides a moderate expansion to Social Security Benefits; including crediting caregivers for time spent out of the workforce, expanding benefits for widows and seniors who have collected payments for 20 years, and allowing for more generous annual cost-of-living adjustments.[11]

However, this plan is just a short-term solution, extending Social security’s solvency until 2040, and will require bipartisan support for it to be put into effect.[12] In the meantime, here’s what you can expect from your disability benefits from 2021. This year, Social Security recipients are seeing a 1.3% cost of living adjustment (COLA) to their monthly benefits, in comparison recipients received a 1.6% COLA in 2020. 

[1] Mark Miller, Column: Six Social Security Fixes that Should be on Biden’s Agenda Next Year, REUTERS, Dec. 17, 2020, https://www.reuters.com/article/us-column-miller-biden/column-six-social-security-fixes-that-should-be-on-bidens-agenda-next-year-idUSKBN28R2X6

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.  

[7] Teresa Ghilarducci, Biden Plans to Fix Social Security’s Short-Fall in 2034, FORBES, Jan. 1, 2021, https://www.forbes.com/sites/teresaghilarducci/2021/01/01/biden-plans-to-fix-social-securitys-short-fall-in-2034/?sh=1ad452c51925

[8] Id.

[9] Id.

[10] Id.

[11] Mark Miller, Column: Six Social Security Fixes that Should be on Biden’s Agenda Next Year, REUTERS, Dec. 17, 2020, https://www.reuters.com/article/us-column-miller-biden/column-six-social-security-fixes-that-should-be-on-bidens-agenda-next-year-idUSKBN28R2X6

[12] Id.