A New Social Security Proposal Would Change How Your Annual Raise Is Calculated - And It Could Mean More Money

Social Security retirees have faced a big problem in recent years that has affected the retirement plan of many seniors. Senior benefits are losing buying power, and not by a small amount. The Senior Citizens League estimates the real value of what Social Security is able to buy is down 13.7% since 2016.

The Social Security 2100 Act would change that. It would alter the formula used to calculate the cost-of-living adjustment (COLA) retirees collect, and would also make some other important modifications to Social Security that better protect seniors.

While this Act is currently just a proposal and hasn't been signed into law, it could help provide retirees with more of the financial security that they deserve.

An across-the-board benefits increase through 2036

Because Social Security hasn't really kept pace with inflation, many seniors are behind and struggling to cover their costs. The Social Security 2100 Act would provide relief to these retirees and give every senior a leg up by allowing them to catch up.

Specifically, it would do this by providing a temporary benefit increase to all Social Security recipients through 2036. It does this by temporarily modifying the benefit formula. Benefits are calculated based on a percentage of your average indexed monthly earnings (AIME). That's the average inflation-adjusted amount you've earned over the years.

Right now, under the formula, you get benefits equal to:

• 90% of your AIME up to a set income threshold called a "bend point"
• 32% of your AIME between the first and second bend point
• 15% of your AIME above the second bend point

The formula would be changed so you instead get 93% of your AIME up to the first bend point. This would give an across-the-board benefits increase to everyone collecting Social Security.

A change to COLAs

The biggest change that the Social Security 2100 Act would make is to alter the way Social Security's COLA is calculated.

Currently, COLAs are calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But since their spending habits don't match the spending habits of retirees, COLAs have not been big enough to keep pace with inflation.

There's another price index, the Consumer Price Index for the Elderly (CPI-E), which is made up of a different basket of goods and services that aims to specifically track spending among households 62 and over. CPI-E often shows higher inflation increases than CPI-W because it weighs the cost of housing and health care more heavily since seniors tend to spend more in those areas.

The Social Security 2100 Act would change the way COLAs are calculated between 2027 and 2036, with the COLA formula using either CPI-W or CPI-E depending on which metric would provide a larger benefit increase.

A higher minimum benefit

The 2100 Act would also take another step to protect the most vulnerable retirees.

It would set the minimum benefit at 125% of the federal poverty level for someone who had worked 30 or more years. The minimum benefit goes down from there, with someone who worked 11 years becoming entitled to benefits equaling a minimum of 6.25% of the federal poverty level.

This would be a bit above the current minimum of $53.50 per month as of January 2026. That's the minimum that a retiree with 11 years of earnings history could receive under the current rules (you need 10 years of earnings to qualify).

Higher taxes for wealthy workers

Finally, the Act would fund many of these increases and aim to help stabilize Social Security's finances by removing the payroll tax cap on incomes above $400,000.

Under the current rules, workers pay Social Security tax on income up to $184,500 in 2026. That's called the wage base limit. Income above that amount is not subject to Social Security tax, and any income above it also isn't calculated when determining the AIME benefits are based on.

The 2100 Act would remove this cap for income above $400,000 so wealthy Americans would pay more in Social Security taxes. There'd also be a new Social Security contribution requirement on net investment income for taxpayers with incomes above $400,000. Investment income is not currently subject to Social Security tax.

While higher earners who are required to pay these new taxes would see a modest increase in benefits, it would be at a much lower rate.

Bottom line

The Social Security 2100 Act has not been signed into law and is unlikely to be under the current administration because it would amount to a large tax increase on wealthy Americans. Still, the Act has been introduced several times and could potentially become law in the future if the political situation changes.

In the meantime, current and future retirees need to be aware of the limitations of Social Security, including the fact that COLAs may not be truly keeping pace with inflation. Planning to supplement benefits with savings is critical to have a secure retirement, and failing to do so would be among the biggest financial mistakes any senior could make.

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