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Let's fix Social Security now

A retirement expert argues that common-sense adjustments could eliminate Social Security's shortfall and take it out of the upcoming fiscal policy debate.

By MSN Money Partner Jan 10, 2013 4:08PM

This post comes from Alicia Munnell at partner site MarketWatch.


MarketWatch logoThis is as good a time as any to fix Social Security's financing problems. In fact, Congress' decision to allow the 2-percentage-point reduction in the payroll tax to expire as part of the fiscal cliff negotiations clears the path for restoring full solvency.


Image: Social Security Card (© Scott Speakes/Corbis)Of course, Social Security has not contributed to the deficit in the past and technically cannot in the future because, by law, expenditures cannot exceed earmarked revenues. But Social Security's promised benefits exceed scheduled taxes, creating a financing shortfall that needs to be fixed.


The political climate is daunting for any sensible endeavor. But I can't think of any reason why next year will be better than this year. And we are coming up on the 20th anniversary of evidence of a significant shortfall in the program.


I am particularly sensitive to the date because in 1994, as assistant secretary of Treasury for economic policy, I was handed a draft of the trustees report showing a jump in the long-run deficit from 1.5% to 2.1% of taxable payrolls. As a big supporter of this wonderful program, I was dismayed to have the deterioration in the system's finances occur on my watch.


Restoring balance to Social Security is crucial for the well-being of every worker, because Social Security provides the base of retirement income. The benefits are not large -- about $1,200 per month on average -- but they are indexed for inflation and continue as long as people live.


The only other retirement income for most households will be that produced by assets in 401k plans or other defined-contribution retirement plans. The Federal Reserve's recent Survey of Consumer Finances shows that these assets are modest -- $120,000 for households approaching retirement. If a couple purchases a joint-and-survivor annuity with $120,000, they will receive $575 per month. This $575 is likely to be the only source of additional income, because the typical household holds virtually no financial assets outside of its 401k plan.


The key question is how much of Social Security's financing gap should be closed by cutting benefits versus raising taxes. My view is that retirements are at risk. The need for retirement income is increasing as people are living longer, health care costs are soaring, and two-thirds will need some long-term care.

At the same time, the retirement system is contracting. The Center for Retirement Research's National Retirement Risk Index shows that 53% of households are at risk of not being able to maintain their pre-retirement living standards once they stop working. Given this outlook, while any package will involve some compromise, we should be careful about large cuts in benefits.


Solving Social Security's financing challenge requires some combination of increased revenues and slowing of benefit growth. On the revenue side, some attractive proposals include increasing the contribution and benefit base gradually to a level covering 90% of total national earnings (about $180,000 at current income levels) and gradually eliminating the tax exclusion for group health insurance so that both employee and employer premiums are covered by the payroll (and income) tax.


No one wants benefit cuts, but two possible options include increasing the full retirement age (after it reaches 67) to keep pace with improvements in longevity and adopting a "chain-weighted" consumer price index for Social Security's cost-of-living adjustment. Adverse effects of the COLA adjustment on the low-income or the very old could be offset by increasing the minimum benefit or making a 5% adjustment at, say, age 85.


In short, everyone who cares about retirement security should welcome the restoration of the payroll tax. This change brings the deficit back into manageable territory. Let's take advantage of this opportunity to eliminate the shortfall and really take Social Security out of fiscal policy debates.


Alicia Munnell is the director for the Center for Retirement Research at Boston College.


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Jan 11, 2013 1:52PM
Lets get reed of democrats and republicans and elect someone with moral ,NOT A POLITICIANS
Jan 11, 2013 1:51PM

People will not live forever the projection the governemnet is using are just that PROJECTIONS.


Why are they not projecting when these same people will fall off SS?


How long will the shortfall last a couple years? 10 years?


A lot of people willing to make older folks work till they drop instead of making the goverment kick in for a few years out of another fund.


If they would have put this money to work instead of spending none of us would even have to pay anymore.

Jan 11, 2013 1:50PM
Every one I know who paid in their fair share to SS and is collecting now is struggling in poverty.  Inflation in food prices and energy prices are sky-rocketing, and the tiny cost-of living increases do not nearly cover it.  Now the government is talking of drastically cutting the cost-of living increase.  It needs to be drastically raised instead.  We retired people do not need to be treated like we are getting welfare from the government. We were forced to pay the taxes, we should get our money we paid in.
  And don't even think of stopping spousal  benefits.  When a woman takes care of the home and children all her life, she works just as much or more than he works, and that without pay. If she didn't work for him, he wouldn't have earned the money he did.
Jan 11, 2013 1:50PM
Your talking a "common sense" approach and D.C.?  Bwa ha ha ha ha.
Hey, let's talk about Social Security, shall we?

I am 30, meaning I will have to wait 35 or so years to get paid off. Actually, that's not accurate, because I'm self-employed, and half the time my money goes under the table, and gets spent shortly thereafter. I make less than $10k a year, heck I make less than $5k a year. I'm not gonna collect, period. So let's talk about you.

In Civics class, I learned that there's a slight tendency for govt to "dip" into the funds. Then there's the fact that people are living longer, and using more medical insurance. Then, there's inflation meaning that big payout right now, won't even cover the monthly bills in 30-50 years.

The dream of Social Security is that "you'll be able to live comfortably in your old age." Or failing that, you'll be able to subsist in your old age. But it's just not gonna happen, you'll have aches and pains every year from 60ish onward, and despite wanting it all just to be over, you'll have money shelled out to supposedly cover things, but without a pension, it really won't due to things like inflation.  So you're effectively paying a tax that's (1) based on you living long enough to collect (if you're working a tough laborer job, this is basically a tax on the poor, and you'll probably get an early grave long before you collect), (2) is cut into by other expenses, and rising costs in general, (3) continues to rise in age, so they don't have to pay out to as many people.

Republicans have this deal where you can treat it like a fund that you can use as you like, Democrats are like "heaven forbid, what will support you in your old age?" Isn't it your choice whether you want anything to support you then? Couldn't some people use it more now?

Jan 11, 2013 1:43PM
And there shall in no wise enter into heaven any thing that defiles, neither whatsoever works O-Abomination or makes lies, deceptions and are greedy. Sounds like this whole government better repent and get on their knees, real soon. We see and witness all they do is lie, cheat, swindle and cause O-Abominations around the world today and sad thing is, they call themselves Christian men. God said the worst of sin is when men know the word of God and turn from it,, Woe to those who do, they would be better if they put a stone around their necks and toss themselves in the sea.
Jan 11, 2013 1:41PM


We need to remove the cap on income eligible for FICA tax. This would  greatly improve the solvency of Social Security and Medicare. There need be no change to the amounts paid out and this does not mean we are taxing the rich unreasonably. It is only fair that if you and I are paying this tax on the entire amount of our income that everyone be required to pay the tax on their entire income. And it should not matter what kind of income it is...income is income.

Jan 11, 2013 1:35PM

To make sure that they make proper decisions, the decision makers need to be forced to receive the same social security plans as all other Americans. Not the special packages that they get now!

Jan 11, 2013 1:35PM
Some of the comments are on the money and many have nothing to do with the problem, while many are silly at best. The problem facing Social Security is that both Democrats and Republicans are considering changing The COLA (cost of living index). Many complain that the current COLA gives them a bad deal and I tend to agree, but if you want to see Social Security wiped out in the future let the politicians of both parties go to what they call the chained cola.

Jan 11, 2013 1:33PM
I will say it one more time let the politicians give up their nice retirement package put the money into the Social Security System and pay into and collect retirement from Social Security just like the rest of us.  The government used our money and didn't pay it back.  See what happens to private companies when they don't fund their 401K plans.  They pass laws for us but don't follow them theirselves.  They fund pensions for government workers and continue to hire in that sector and leave the rest of us out to dry.  Government salaries have now passed the private sector so there is no need to fund pensions for them anymore.  Let the new hires pay into Social Security and screw giving them pensions which we pay for with our taxes.           
Jan 11, 2013 1:31PM

There are adjustments needed as society is evolving. Currently most people do not get any benefit because they die too early. Number of singles are increasing so that spousal benefit in future will be not as widespread.


Cruel as it may seem, terminally ill people in their 90's and above may be a badge of honor. However if they are to be keep in half of their time in hospital and other quarter rotting looking at the wall, the value of life is questionable. The idea is letting people live like zombie and not offering them right to die is like a bad science fiction movie. Right to die should intricate fabric of society.


Right to reproduce (not sex) need to be given fresh look. To let people make babies that will from birth to end will be liability is non starter in a Universe as it is made. In a society where divorces are epidemic there should be further work on raising babies. Once two make baby or adopt one the responsibility should be defined jointly and severally. One party may be multimillionaire and giving for kids so little that other spouse has to go on welfare is stupid. We need to hunt down seed and split guys from further proliferating.


Lot so these ideas may look low life from conventional perspective. We can have conventional life as we used to have few hundreds years back and primitive or we can create a society where each citizens is worthy of respect, worthy of self sustenance and have decent life always from  terminal loneliness and rotting. If we fail to make changes that are in tune with evolution of technology and lifestyle, we all will lose. Those who cannot get ahead of the evolution have dismal future.

Jan 11, 2013 1:30PM
Everything that an individual paid into Fica/SS should be returned to them upon the retirement age.That individual then can make up his own mind what to do with his funds that was lent to this Gov.Everyone seems to forget that this is not the govs money to do with what they please.That is what we pay taxes for.Oh s*** I'm sorry I'm trying to use political correctness and I forgot there is no such thing.
Jan 11, 2013 1:28PM
If you really want to "fix" Social Security, raise the contributions cap. It has not been adjusted for inflation. To stop taking the contribution at just over 100k is outdated.
Jan 11, 2013 1:26PM

SS fund balence by year


1940 $1,745,000,000
1941  2,398,000,000
1942  3,227,000,000
1943  4,268,000,000
1944  5,446,000,000
1945  6,613,000,000
1946  7,641,000,000
1947  8,798,000,000
1948 10,047,000,000
1949 11,310,000,000
1950 12,893,000,000
1951 14,736,000,000
1952 16,600,000,000
1953 18,366,000,000
1954 20,043,000,000
1955 21,141,000,000
1956 22,593,000,000
1957  23,366,000,000
1958 23,912,000,000
1959 23,208,000,000
1960 22,996,000,000
1961 23,405,000,000
1962 22,133,000,000
1963 21,333,000,000
1964 21,963,000,000
1965 22,187,000,000
1966 21,558,000,000
1967 25,537,000,000
1968 28,118,000,000
1969 31,868,000,000
1970 37,720,000,000
1971 40,739,000,000
1972 43,789,000,000
1973 44,285,000,000
1974 46,120,000,000
1975 48,138,000,000
1976 44,919,000,000
1976 43,514,000,000
1977 39,615,000,000
1978 35,350,000,000
1979 33,367,000,000
1980 32,246,000,000
1981 27,226,000,000
1982 19,290,000,000
1983 31,950,000,000
1984 32,212,000,000
1985 39,750,000,000
1986 45,867,000,000
1987 65,437,000,000
1988 104,237,000,000
1989 156,682,000,000
1990 214,900,000,000
1991 268,415,000,000
1992 319,161,000,000
1993 365,949,000,000
1994 422,706,000,000
1995 483,152,000,000
1996 549,562,000,000
1997 630,878,000,000
1998 730,195,000,000
1999 854,908,000,000
2000 1,006,754,000,000
2001 1,169,741,000,000
2002 1,328,808,000,000
2003 1,484,340,000,000
2004 1,635,443,000,000
2005 1,808,922,000,000
2006 1,994,158,000,000
2007 2,180,619,000,000
2008 2,366,291,000,000
2009 2,503,612,000,000
2010 2,585,323,000,000
2011 2,653,336,000,000
2012 2,717,916,000,000

Jan 11, 2013 1:25PM
So is everyone enjoying their GOP caused reduction in their paychecks? Since the party that caters to the rich insists that Social Security is an "entitlement" instead of something you PAY FOR over your lifetime, now we all get to pay more.
Jan 11, 2013 1:23PM
Why not just increase payroll tax to all of everyone's earnings? Most pay payroll tax on 100% of their income now. why is it fair for some to only pay on the first $113,000, or whatever, and not on the rest? As for the argument that the wealthy don't get enough Social Security to cover their contributions, the never-married individual that dies before retirement gets ZERO for his/her contribution!
Jan 11, 2013 1:23PM
I used to hear alot about 1200 dollar toilets and such, I am fairly sure the fraud that used to be reported on has not been fixed, how much would be saved if the issue was truly fixed?
Jan 11, 2013 1:17PM
401K's !!  you can not trust why, because past practice dictates that when your about to use it the investments loos there value because of the stock market down tern. It is a never ending cycle.
Wake up do not be fooled. Now if we could just keep the government  from raiding it and giving IOU'S. Washington is BROKEN! Thieves Scoundrels.     
Jan 11, 2013 1:16PM

info right from SS for 2012:


 $837,827,000,000 SS collected.

  $ 773,247,000,000 benifits paid

  $ 64,580,000,000 net increase


Balance on trust  fund   $2,717,916,000,000

Jan 11, 2013 1:16PM

Lets make it easier yet, give me my money back with interest.

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