Significant changes are coming to Social Security that could affect your retirement benefits. This change will result in Social Security payments stopping completely for many Americans who receive overpayments from the agency until the balance is reached. This very program was designed to provide financial security to the country’s elderly population who were facing significant challenges, but it is now putting seniors at risk.
The trio of threats: COLA, Taxable Maximum, and Earnings Limit
One of the most significant changes is the cost-of-living adjustment (COLA). Although it’s a meager 2.5% increase, it may not keep pace with inflation, leaving seniors with less purchasing power. The COLA is designed to help benefits keep pace with inflation, but its not always a simple calculation.
Some seniors may pay more in taxes as a result of the higher taxable maximum of $176,000, further eroding their financial security. If you earn above this threshold, you won’t pay Social Security taxes on those excess earnings, but this change could reduce payments for some retirees. Even if the bill passes, some retirees will still have to pay state income tax on their Social Security income because it only addresses federal income tax.
Many retirees, especially those who have other forms of taxable income, such as wages or retirement plan distributions, could benefit from the elimination of federal income tax on Social Security retirement benefits. This is because up to 85% of Social Security income is subject to federal tax.
Once you reach full retirement age, there’s an earnings limit to watch out for. In 2025, this limit is $23,400. For every $2 you earn above that limit, $1 is deducted from your benefits. While it’s a complex system and could result in reduced benefits, making sure you understand your earnings limit can help you maximize your benefits.
Who should be held accountable?
According to a 2024 Congressional Research Service study, overpayments are often the result of agency error, but the exact proportion of overpayments that are fraud, as opposed to error, was not disclosed.
The policy change, which will take effect March 27, reverses a move made last year by former Social Security Commissioner Martin O’Malley under the Biden administration. The Democrat and former Maryland governor contends that agency errors or recipients’ unintentional failure to disclose new income or employment account for the vast majority of overpayments, rather than fraud.
The Social Security Administration (SSA) should be held accountable for overpayments of Social Security benefits; seniors should be held accountable.
The Social Security Fairness Act: Bad News for Retired Workers
Retirement, spousal, and survivor benefits are paid by the Social Security Old-Age and Survivors Insurance (OASI) Trust Fund. Only 79% of scheduled payments would have been paid by 2033, when the OASI Trust Fund was projected to become insolvent before President Biden signed the Social Security Fairness Act into law.
Crucially, this does not mean that Social Security is going bankrupt or that benefits will cease to be paid. Rather, it means that benefits will be cut by at least 21 percent unless Congress can find a way to shore up the program’s finances before the trust fund is depleted.
Nonetheless, more than 3 million public employees will see an increase in their benefit payments as a result of the Social Security Fairness Act. That’s great news for those people, but it’s bad news for other beneficiaries, including retired workers. The expanded benefits under the new law were not taken into account by the trustees when they projected that the OASDI trust fund would run out of money in 2033.
A Call to Action: Protecting the Financial Security of Seniors
It is important that policymakers, advocates, and seniors themselves work together to address these challenges. Understanding the impact of these changes could help prevent retiree bankruptcies.