GREENVILLE — Financial security is something most people desire and think they deserve.
Looking closer to the end of things, hopes of depending on Social Security (SS) exist but can also seem unsettling. Some worry about its availability upon retirement, and debates about whether or not to eliminate the cap leave some people wondering about its fate.
Based on the increase in the U.S. Department of Labor’s Consumer Price Index (CPI-W), from the third quarter of 2014 through the third quarter of 2016, SS recipients will receive a 0.3 percent Cost-of-Living Adjustment (COLA) this year. The annual COLA usually means an increase in the benefit amount people receive each month.
By law, the monthly SS federal benefit rate increases due to a rise in the cost of living. The government measures changes in the cost of living through the CPI-W, which rose this year, due to inflation and a cost of living increase. Since the CPI-W rose, the law increases benefits to help offset inflation.
Generally, there are two aspects of Social Security taxation. First is payroll or Federal Insurance Contributions Act (FICA) taxes which are levied on peoples’ wages. The second is income taxes which may be levied on SS benefits. Social Security Administration data shows 11,195 Darke County residents received SS, in 2013. The variety of benefits received, includes: general retirement, retired spouse, children of retired parents, disability, disabled spouse, children of disabled parents, surviving widow and surviving child.
In addition to the increase in benefits, the COLA has other implications. Because there is a COLA this year, the maximum amount of earnings subject to the SS payroll tax will be allowed to grow with average wages, rising from $118,500 to $127,200. The SS payroll tax cap is the earnings level above which no further Social Security taxes are collected. Darke County’s median household income, in 2015 was $44,632.
“The 200 or so Americans who earn more than $50 million, reach the cap in five hours after the ball drops,” Diane Johnson says.
Johnson, of Greenville, Ohio, is an Associate Professor, Emeritus of The Ohio State University, Department of Extension, Darke County. As Extension Educator in Family and Consumer Science, she has worked with community leaders and university sources to bring research-based educational programs to Darke County adults and youth.
“People are always talking about running social security running out,” Johnson said. “They need to raise or eliminate the cap and let the more wealthy pay a little more into it. I think it would help the trust fund.”
Others think the cap is beneficial, such as Rachel Greszler, Senior Policy Analyst, Economics and Entitlements for Heritage.org and author of the article “Raising the Social Security Payroll Tax Cap: Solving Nothing, Harming Much.”
“The creators of the Social Security program did not advocate a tax cap; rather, they recommended that everyone with earnings above three times the average wage be exempt from Social Security altogether,” Greszler wrote in her article. “These individuals would neither pay Social Security taxes nor receive Social Security benefits. This recommendation was likely rooted in Social Security’s original intent to prevent poverty in old age. Individuals who earn more than three times the national average are unlikely to need government-provided social insurance to keep them out of poverty in retirement.”
The existence of the tax cap in its current form not only curtails excessively high and economically damaging marginal tax rates, it also prevents workers with very high incomes from receiving unnecessarily high benefits,” Greszler added.
Social Security’s tax max (or cap) has evolved throughout the program’s history. According to ssa.gov, it started at $3,000 in 1937 and remained there until 1951. Congress then raised the threshold, first through ad hoc changes and then through wage indexing, to accomplish policy goals. Since the passage of the 1977 Social Security Amendments, the tax max has increased steadily with the average wage. However, because SS faces a projected funding shortfall, many policymakers have discussed increasing the tax max beyond its wage-indexed values, ssa.gov said.
Either way, one’s planning of a secure financial future is important. Johnson offers considerations to help with financial security and retirement.
“For one, you can delay retirement,” she said. “Secondly, if you stay in the working world long enough, you can pay into some of those other funds, like a 401K or an Individual Retirement Account (IRA). Another thing you can do is continue working after receiving Social Security,” she said.
To calculate ones benefit estimates, visit www.ssa.gov/oact/quickcalc. For more information about Social Security, visit http://socialsecurityhop.com/offices/social-security-office-greenville-oh-45331-ohio.