What to Expect for Social Security in 2022

Social Security is the bedrock of the American retirement system. Over 64 million people, or more than one in six U.S. residents, collected Social Security benefits in June 2020. And by the end of 2020, nearly nine out of 10 Americans over the age of 65 received Social Security benefits, according to the Social Security Administration.

For at least 62% of American retirees, Social Security is more than half of their income, and for the other third, it's almost all of their retirement income, according to Jamie Hopkins, managing partner of wealth solutions at Carson Group.

So what do experts anticipate will happen in 2022 to either shore up or chip away at this government program?

See: 10 Social Security Bills Introduced in 2021

"Sometimes I get asked, is Social Security going away?" Hopkins told ThinkAdvisor. "I respond that, 'Well if we're OK with two-thirds of America's retirees essentially not being able to meet any of their basic needs, then we could [take] Social Security away." In other words, the program is not likely to disappear.

The importance, and success, of the program can't be underestimated, Hopkins notes. "The longer we go without fixing it, the harder it is to fix over time," he says. "We also start to erode confidence in a system that is arguably the most efficient financial instrument ever built, which is a concern when people are like, 'What could we do instead?'

"Nobody's ever come up with a better financial instrument than Social Security. To this point, it runs with a total overhead of like 0.5%. There's nothing as efficient as that on the planet today. That's as good as it gets," he said.

Hopkins sees one way to fund Social Security, and that is raising payroll taxes now, which would be about 3.25%.

"The challenge of continuously pushing off Social Security [fixes] every year is it gets harder and harder to fix in the future because the amount you'd have to raise taxes is condensed, and the tax rate goes up," he explains.

From this tax perspective, it's pretty straightforward, he says. "But if we wait another 10 years, it will be substantially higher, and the tax burden will feel even more painful."

Enter a Sacred Trust

More optimistic is Nancy Altman, president of Social Security Works, a lobbying group, who said "We anticipate a lot of movement on Social Security next year, which will have a major impact on [the program]," she wrote in an email.

For example, the 2100 Act: A Sacred Trust introduced earlier this year by Rep. John Larson, D-Conn., who chairs the Social Security Subcommittee, is "co-sponsored by around 90% of House Democrats. The 2100 Act would expand Social Security benefits both across the board in important targeted ways. It would also cut the long-range shortfall by more than half."

The bill begins to address the projected Social Security Trust Funds shortfall, states Maria Freese, senior policy expert at the National Committee to Preserve Social Security & Medicare, a lobbying group. She notes in an email that "according to the Social Security Administration's chief actuary, H.R. 5723 would slash the long-range actuarial deficit by one-half, from 3.54% of payroll to 1.71%."

This move would also improve "the percentage of scheduled benefits that are projected to be payable on a timely basis from today's 78% to 87%. As a result, [the bill] will make a significant down payment toward keeping the system on sound financial footing," Freese says.

The Downside

Not everyone is as optimistic that changes will be made to shore up Social Security next year.

"The longer [Congress] drags their feet, the more anxious consumers become, the more sensational the headlines get, and the more retirees react to being scared and make poor claiming decisions," says Marcia Mantell, founder and president of Mantell Retirement Consulting, who also writes a regular column on Social Security for ThinkAdvisor.

"It is infuriating at this point that despite a number of representatives trying to move forward with solid fixes for Social Security (John Larson among them), there seems to be no appetite to address [them]."

Nor does Hopkins see the bill passing next year. And although the system "absolutely" can be fixed, he fears the constant debate about it starts "to erode confidence in the system" over time.

"I do have this concern that people saying, 'It's going to go away' will become a self-fulfilling prophecy because a lot of 30-year-olds [and younger] are saying, 'Well I'm not going to have Social Security,' but no one is saving enough [for retirement] to offset the loss of it," he says.

Freese contends that "Social Security is not 'going broke.' Nevertheless, we will no doubt hear more claims to this effect in 2022, mainly from conservatives who want to cut benefits. We also may hear the trope that 'No one in Washington has the courage to address Social Security's funding challenge.' This also is untrue."

In fact, Altman believes the 2100 Act will pass the House next year, and "will have a head of steam. Since President Biden ran on this issue and the Democratic Party has embraced it, there should be momentum for hearings and action in the Senate as well. Republican senators will either have to support it or filibuster it, making it a campaign issue in 2022."