Boomers should help fix Social Security
The baby boom generation, instead of raising Social Security taxes on itself, kicked the problem of underfunding down the road.
This post comes from Alicia Munnell at partner site SmartMoney.
Someone asked whether any of the reforms enacted by state and local pension funds seeking to solve their funding crises could be applied to Social Security. Some states reduced or temporarily suspended their yearly cost-of-living adjustments -- COLAs -- for their retirees, a solution that seems fair to me.
This approach raises the inevitable question of whether the traditional notion of protecting those 55 and older from benefit cuts under Social Security is appropriate. (Post continues below.)
Many states and localities face substantial shortfalls in their pension funding. Experts argue about the extent that sponsors are at fault, but the fact is that public plans held substantial equities and were hit hard by the financial collapse of 2008. At the same time, the recession decimated state and local budgets by simultaneously reducing tax revenues and increasing demand for services.
Because sponsoring governments could not make up for the drop in asset values, they enacted increases in pension contributions for both current and future workers, benefit cuts for new hires, the introduction of defined contribution plans, and -- in six states -- modifications of the COLAs for current retirees.
In all six states, the COLA modifications have been challenged in court. In two of the states -- Colorado and Minnesota -- courts upheld the changes. In both cases, the judges found that the COLA was not a core benefit that participants could expect to receive for life, and in Minnesota the judge ruled that the COLA modification was necessary to prevent the long-term fiscal deterioration of the pension plan.
In the case with which I am most familiar -- Rhode Island -- suspending the COLA and then linking future COLAs to the investment returns was an essential part of the solution. Retirees vastly outnumbered current workers, so making changes only for current and future workers would have had little impact on the state's dire fiscal situation. Therefore, everyone needed to contribute to the solution.
So, how can it be fair for retirees to help solve the pension problem in Rhode Island and the other states and yet, when thinking about Social Security reform, tell those 55 and older that they will not be expected to contribute to the nation's long-term solution to future funding problems?
The conventional argument for protecting Social Security participants is that older workers and retirees do not have the flexibility to adjust to benefit cuts. That is true, and these individuals should not be forced to endure drastic cuts. But the argument for leaving them completely untouched also does not seem compelling.
It could be argued that in the case of Social Security, the over-55 crowd actually misbehaved. It has been very clear since the early 1990s that Social Security would need additional money to maintain current benefits. Yet, the baby boom generation, instead of raising taxes on itself, kicked the can down the road. Now that many of its members are over 55, they want to foist the burden on younger generations. That does not seem fair.
This idea may seem heretical, but I currently think that some sort of COLA suspension or modification should be part of any package to fix Social Security. Such an approach has a precedent: The 1983 amendments delayed the COLA for six months when the program needed money immediately.
Any change to the COLA would have to be applied judiciously. Many older people depend completely on their Social Security check for income in retirement. The vulnerable would need to be protected. Thus, COLA changes would have to be implemented on a sliding scale, perhaps based on family benefits. But leaving all those 55 and older untouched no longer seems like the right answer.
Alicia Munnell is the director of the Center for Retirement Research at Boston College.
More on SmartMoney and MSN Money:
SS can be fixed in 1 quick easy move = STOP PAYING TO PEOPLE WHO NEVER PAID IN !!!
Ther are literally millions of people that are getting disability benefits fron SS that never paid into it.
SS was meant to be a retirement supplement not a catch all.
ALSO STOP loaning money to our corrupt gov't members to keep the gov't afloat. Make them do their job by passion laws for a flat rate tax and a balanced budget -STOP giving them a free run with our retirement.
Solution: Strip/cut/do-away-with pensions of the past congressional members. Make the current and future congress and senate positions non-paid positions...these so called "Statesmen" are doing nothing. If it's an unpaid position we could get truely good people as our lawmakers....men and women that are truely there to help the state of the nation.
Just a thought.
Why should the boomers have to fix something the corrupt gov't broke.
We are the people who paid MOST of the money into it.
It was not broke until the greedy congress got a hold of it and the ILLEGAL aliens are getting a free ride from it..
Give me back what I have paid in over the past 40 years and I will have a good retirement from my own investments NOT from a crooked politician stealing me blind.
a) Social Security taxes have indeed progressively gone up -- it's nearly double the 3.6% tax rate in 1965. During much of the boomers' working years, they've paid 6.2% in payroll taxes (temporarily reduced to 4.2% in 2011). In the same period, maximum earnings eligible for SS taxation have also increased from $4,800 (equivalent to about $34,500 in 2011 dollars) to $106,800.
b) The government also takes back Social Security benefits from retirees through taxation. From the start, SS income was not intended to be taxed. But the government changed that in the 1980s, so that now up to 85% of SS is counted as taxable income -- another form of double taxation.
c) Full SS payments for earlier generations used to start at age 65. But the full retirement age was later increased, so boomers must be age 66 or older, depending on their birth year.
d) The yearly CPI is so manipulated that the COLA has progressively gotten more out of whack from true inflation. The government itself admits this discrepancy by using different measures to calculate Medicare premium increases. From 2001 to 2010, Medicare premiums rose much faster than Social Security benefits, taking increasingly larger amounts from SS income. Part B premiums increased 121% (12.1% per year), while SS benefits only rose 31% (3.1% per year). "Which inflation measure is more realistic, and which is most dishonest? The one that taketh, or the one that giveth?" (source: AssetBuilder, Scott Burns, 11/04/11)
e) The Social Security Administration saves multi-millions of dollars each year by declaring thousands of still-living retirees "dead" and stopping their payments, then make it extremely difficult for retirees to get it started again. (Maybe the SSA is trying to cancel out the multi-millions of erroneous payments they send to those who are actually deceased -- source: CNN, 09/07/11 and 08/17/11, articles by Blake Ellis). Not to mention all the waste and fraud within the Medicare system.
SOCIAL SECURITY HAS 3 TRILLION IN IOU;S FROM OTHER BRANCHES OF GOVT. iF COSTS ARE TO BE LOWERED START WITH THE MILITARY, THEN GOTO GOVT PENSIONS AND WAGES, THEN GO TO MEDICARE WHERE THE GOVT IS BEING OVER CHARGE FOR EVERYTHING FROM DRUGS TO FEES AND HOSPITAL COSTS. Social Security is Not underfunded, rather it is the only program that has paid for itself! This report is Bull. Nobody ever mentions the military or drug companys.
The truth is SS funds have been raided for general government expenses for years. You know, wars, foreign aid, and bailouts of every kind for everyone it seems. Then they reduced the payroll tax to spur the economy, and further speed the demise of the SS program. Turning SS into a federal welfare program through SSI was another mistake. There you have it in a nutshell...what is left is a whole bunch of worthless IOU's.
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