As traditional pensions become less prevalent, it is forcing individuals and families to save enough to fund their own retirement years. Over the past few years, we have seen both Democrats and Republicans agree on the need to reduce the growth of Social Security benefits. Recently, we have seen some Democrats shift from that viewpoint and begin to support a plan that would increase the annual inflation adjustments for Social Security benefits. By increasing the inflation adjustment benefits, it would likely require a change in the payroll tax cap, meaning higher earners would pay more in taxes.
The primary concern is how to calculate the annual cost-of-living-adjustment (COLA) for retirees; currently, increases are tied to the Consumer Price Index (CPI). According to the Bureau of Labor Statistics, the CPI is a measure of the average change over time in the prices paid by consumers for a basket of consumer goods and services. Due to increasing health care and assisted housing expenses, some economists have argued that the cost of living for retirees has consistently risen faster than inflation. Alaskan Democrat, Senator Mark Begich, introduced a bill in 2012 that would adopt the CPI-E ('E' stands for elderly), which would result in a bigger inflation raise for retirees than the standard CPI would.
The odds of passing increased Social Security benefits are small, but the bill introduced by Senator Begich marks a movement from the rest of the crowd. However, many GOP leaders still favor using a 'chained CPI' which could result in a lower inflation rate compared to the traditional CPI.
Social Security benefits have been a topic of interest lately with many of my folks. If you have questions about how the benefits works or at what age taking your benefits is feasible for you, please don't hesitate to ask me for objective advice.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).