Could a Universal Social Security Benefit Actually Work?

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The average senior on Social Security will collect $1,543 a month next year, but some beneficiaries will get a lot less, and many will get more. There’s a special formula that goes into calculating benefits, but ultimately, the monthly payouts seniors receive are based on their individual wage histories. A group called the Heritage Foundation, however, wants to change that. The organization is proposing a universal Social Security benefit for all seniors rather than basing benefits on individual earnings. It’s an interesting idea — but could it really work?



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Could a Universal Social Security Benefit Actually Work?

The same benefit for everyone

As one might expect, higher earners are generally entitled to more robust Social Security benefits than lower earners despite needing the money less. The goal of universal benefits would be to level the playing field among retirees and give low-income seniors a much-needed boost.



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Social Security card

This type of proposal could also potentially reduce the amount of Social Security tax workers are forced to pay on their wages. Right now, 12.4% of wages of up to $137,700 ($142,800 in 2021) go to fund Social Security. Self-employed individuals pay the entire 12.4% tax, while those who work for other companies split that tab with their employers, each paying 6.2%. It’s estimated that a universal retirement benefit could slash that 12.4% tax rate down to 10%, leaving workers to fork over less of their money up front. For a household with a median income, that amounts to an extra $1,580 a year.

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Could a universal benefit work?

The above proposal makes one big assumption — that Social Security won’t start running out of money. Right now, the program’s trust funds are set to expire within the next 15 years, and once that happens, benefit cuts will be on the table. In theory, though, it’s possible to implement a universal Social Security benefit even if that payout starts at a lower baseline.

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But then there’s the backlash that could easily ensue if higher earners start paying more Social Security taxes only to wind up with the same retirement benefit as their counterparts who pay a lot less. Even if the Social Security tax rate is reduced to 10%, a worker who earns $120,000 a year for 20 years will pay more into the program than someone who earns $20,000 a year for that same timeframe.

Of course, ironically, the current tax setup is said to favor higher earners because once the annual wage cap is reached, the wealthy are let off the hook on Social Security taxes altogether. But still, the idea of a single, universal benefit may not sit well with lawmakers or their more influential constituents.

Either way, it’s clear that low-earning seniors who rely on Social Security for the bulk (or, in some cases, all) of their retirement income are, generally speaking, having a hard time financially, especially with benefits losing buyer power by the year. A universal benefit is an interesting concept for lawmakers to think about, but whether it’s feasible in practice is yet to be determined.

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