Approximately 2.8 million American individuals might become eligible for expanded Social Security advantages in 2025, as outlined below.
The annual cost-of-living adjustment for Social Security in 2025 boosted the typical benefit from $1,927 per month to $1,976 per month, equating to a $49 increase. Yet, many sought a more substantial increase due to the ongoing slow inflation. Even with decreased inflation, some retirees continue to face financial struggles, particularly those with minimal personal savings.
An impending bill approaching President Biden's desk could bring some relief to approximately 2.8 million Social Security recipients in the United States. Here's a rundown of the key points.
The Upper House Approved the Fairness in Social Security Act
The bi-partisan Fairness in Social Security Act was greenlit by the Senate on December 21, 2024. Initially passed by the House, the legislation now advances to President Biden, who is expected to endorse it before the conclusion of his tenure.
The bill proposes to scrap two major Social Security regulations: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The WEP diminishes the Social Security entitlements for certain retired workers who receive government pensions from non-contributing occupations throughout their careers. Similarly, the GPO affects the spousal and survivor benefits for personnel with non-covered government pensions.
When authorized, the bill will retroactively abolish these regulations for all benefits issued post-December 2023. Consequently, the 2.01 million retired workers and more than 734,000 spouses shall receive enhanced Social Security benefits and retroactive compensations for benefits received after December 2023 but prior to the legislation going into effect. However, the exact timeline for distributing the additional funds remains unclear at present.
This act could bring substantial benefits to millions of families that incorporate former police officers, firefighters, educators, and other public servants. Yet, while the bill garnered support from 76 senators, it's not without its critics.
The Negative Side of the Fairness in Social Security Act
The short-term benefits of the Fairness in Social Security Act would be nothing but positive for the approx. 2.8 million beneficiaries impacted. Those not falling under this category won't observe any modifications to their benefits, but their situation won't worsen in the interim.
However, problems brew beyond a few years, when Social Security's reserve funds are exhausted. According to a Congressional Budget Office report, prior to introducing this legislation, the reserve funds were estimated to be exhausted by around 2034. Absent reform, the government would have to trim down Social Security benefits by 23% in 2035.
The passage of the Fairness in Social Security Act is likely to augment Social Security's expenditure by around $196 billion. This would accelerate the depletion date of the reserve funds by approximately six months.
Though it might seem insignificant, this is a significant issue. The government has been aware of Social Security's funding challenges for years, and no viable resolution has managed to gain traction, in part due to a lack of appealing solutions. The governmentwill have to raise Social Security taxes on workers, decrease benefits for retirees, or both. The closer we approach the depletion date, the less options we'll have.
If this is a concern that resonates with you, consider reaching out to your Congressional representatives and voicing your opinions. Additionally, monitor this issue as we transition into the new year, as we're likely to hear more about Social Security's funding predicament as we approach the 2034 deadline.
Upon President Biden endorsing the Fairness in Social Security Act, many Social Security recipients might see an increase in their retirement income due to the abolition of the Windfall Elimination Provision and the Government Pension Offset. However, this legislation could potentially speed up the depletion of Social Security's reserve funds, leading to potential decreases in benefits for future retirees. In light of this, it's crucial to consider the long-term financial implications of such policies and engage with Congressional representatives to express concerns.
In the pursuit of a comfortable retirement, individuals should also prioritize their personal finance and savings strategies, ensuring they have enough money to supplement any potential Social Security benefits in case of changes or shortfalls.
