Social Security has been a cornerstone of retirement income for many Americans, but as time goes on, certain rules and structures have become outdated. Here are three key aspects of the program that could benefit from some serious adjustments:
1. The Calculation of Cost-of-Living Adjustments (COLAs)
Social Security’s automatic Cost-of-Living Adjustments (COLAs) are generally seen as a positive change, but the index used to calculate them—the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—does not fully represent the expenses faced by seniors.
The CPI-W reflects the costs of wage earners living in urban areas, but many Social Security recipients are not wage earners, and they may not live in urban settings. This creates a mismatch, meaning that the annual COLAs don’t fully align with the real-world costs seniors encounter.
A more senior-specific index could be a better option to ensure that Social Security beneficiaries are better compensated for the inflation that directly affects them.
2. The Do-Over Rule: More Time for Social Security Claimants
Social Security offers a relatively unknown feature—the do-over rule—which allows people who claim benefits early (and later regret it) to undo their claim and pay back the benefits they received in order to reapply at a later age. This is a great option, but the problem is that it must be done within 12 months of your original claim.
Many people who claim Social Security at 62, for example, may realize after several months that the reduced benefits aren’t enough to cover their expenses. However, by the time they figure this out, they may have already passed the 12-month window to repay their benefits.
It would be beneficial if lawmakers extended this timeline to 18 or 24 months, giving individuals more time to adjust to living on Social Security before deciding if they want to undo their claim.
3. The Earnings-Test Limit Before Full Retirement Age
Once you reach full retirement age (which is 67 for anyone born in 1960 or later), you can work and earn unlimited income without any penalties to your Social Security benefits.
However, if you claim Social Security before reaching full retirement age and continue to work, your benefits are subject to an earnings-test limit. If you exceed that limit, your benefits are temporarily withheld and later repaid in the form of larger checks once you reach full retirement age.
While this rule is intended to avoid overpayments to those who still earn significant income, it also creates a financial disincentive for seniors to work part-time.
If the earnings-test limit were eliminated, seniors could work and supplement their income without worrying about losing benefits. Additionally, work can have social and mental health benefits, making it a valuable option for retirees.
Social Security has come a long way, but many of its rules could use an update to better serve retirees today. Lawmakers should consider reevaluating the way COLAs are calculated, extending the timeline for the do-over rule, and removing the earnings-test limit for those under full retirement age.
These changes could make a significant difference for seniors trying to make ends meet on their Social Security benefits.
