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.
This post comes from Alicia Munnell at partner site MarketWatch.
This 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.
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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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.
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.
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?
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.
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!
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.
SS fund balence by year
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.
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
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