The average elderly Social Security will receive $ 1,543 per month for the next year, but some beneficiaries will receive much less and many will receive more. There is a special formula that goes into calculating benefits, but ultimately, the monthly payments that seniors receive are based on their individual salary histories. A group called the Heritage Foundation, however, wants to change that. The organization is proposing a universal Social Security benefit for all seniors, rather than basing benefits on individual income. It’s an interesting idea – but could it really work?
The same benefit for everyone
As might be expected, those who earn more are generally entitled to more robust Social Security benefits than those who earn less, despite needing less of the money. The aim of universal benefits would be to level the playing field among retirees and give low-income elderly people a much-needed boost.
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This type of proposal could also potentially reduce the amount of Social Security tax workers required to pay on their wages. Currently, 12.4% of salaries of up to $ 137,700 ($ 142,800 in 2021) go to finance Social Security. Self-employed people pay the full 12.4% tax, while those working at other companies share this account with their employers, each paying 6.2%. It is estimated that a universal retirement benefit could reduce this tax rate from 12.4% to 10%, leaving workers to spend less of their money upfront. For a middle-income family, that equates to an extra $ 1,580 per year.
Could a universal benefit work?
The above proposal makes a big assumption – that Social Security will not start running out of money. At the moment, the program’s trust funds are set to expire in the next 15 years, and when that happens, benefit cuts will be on the table. In theory, however, it is possible to implement a universal Social Security benefit, even if payment starts at a lower baseline.
But then there is the reaction that could easily occur if those who earn more start paying more Social Security taxes just to end up with the same retirement benefit as their colleagues who pay much less. Even if the Social Security rate is reduced to 10%, a worker who earns $ 120,000 a year for 20 years will pay more for the program than someone who earns $ 20,000 a year during the same period.
Of course, ironically, it is said that the current tax configuration favors those who earn more because, once the annual salary cap is reached, the wealthy are completely free from Social Security taxes. Even so, the idea of a single, universal benefit may not appeal to legislators or their most influential constituents.
Anyway, it is clear that low-income seniors who depend on Social Security for most (or, in some cases, all) of their retirement income are, in general, having financial difficulties, especially with benefits that lose power of purchase per year. A universal benefit is an interesting concept for lawmakers to think about, but whether it is feasible in practice has not yet been determined.