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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Now at 81 years old I see the American dream has changed to a trailer and a pull car if your real lucky to own one.
But what ever it's worth the USA is the place to live.
LOL Capt. Billy~
1. People that aren't me should pay more taxes.
2. People that aren't me should get less benefits.
3. People that aren't me should have to retire later.
It appears the mess with Social Security is because of two separate items that have taken place within the government. The first is the government borrowing against Social Security and the second is because the system was dramatically changed in the ‘70s to include all of those with disabilities.
This included those who had never paid a dime into the system. There was a dramatic increase in expenses at this time which caused a 50% increase in expenses to the system. (Check out the link) These same people were entitled to Medicare and Medicaid and again never had to pay into the system.
The biggest problem with this was the inequity. Those who had never paid for the system would actually receive far more than those who had put money in the system for 40 years. Many of these same people were fully capable of being in the workforce but instead have become dependant on the system that now cares for all of their needs and also entitles them to a stipend each month on top of this.
If the system continues to erode like this without accountability it is perhaps best if the system does go broke. At this point it would be like the fiscal cliff and Government would have to act and take a look at what they had done. (I realize that this will never happen with our current system because Government wants to expand even more.)
What ever happened to equality for everyone? If you are going to pick favorites then I believe that the system is broken.
I fear that the real problem will arise for my children and their children.
To sum up, anyone who is supported by SS should have worked for the right or should not be included in the system. If they are included it should be at a rate less than the lowest tier of those who have worked for the right. And last Government should not be allowed to borrow another person’s money without authorization from that group of people. Does anyone realize the kind of influence that can be had with a two trillion dollar carrot? (Probably more than any other group in the United States!).
Why not just get rid of the cap on social security but limit the maximum entitlement? This alone would help fund all of the Governments extraneous programs by those that could afford to do so. (Just a suggestion)
Reform Social Security To Allow All Who Have Completed Their Quarters To Withdraw Their Monies (All or Partial) Untaxed!
Paul Ryan had a good idea when he said to privatize the Social Security Funds. However, i think that raising the social security age to 67 is wrong! because other countries in the world like France, the retirement age is less than 65 years old. Besides our society in the USA is very troubled with mental illness and killings everywhere. we're not living longer! like the media reports it. They can only raise the retirement age to 67 to Americans that are young and healthy. Don't mess with seniors!
Here in Occupied USA it's call journalism
I have an idea that would put social security back in the black.... PUT THE MONEY AND INTEREST ON IT BACK THAT CONGRESS TOOK WHEN THEY PUT IT INTO THE GENERAL FUND SO THEY COULD USE IT FOR AID TO OTHER COUNTRIES AND WHATEVER ELSE THEY WANTED, IT WAS NOT TO BE USED FOR ANYTHING EXCEPT SOCIAL SECURITY FUND WHEN IT WAS SET UP!!!
And now that it has been screwed up and spent by politicians for everything under the sun but SOCIAL SECURITY you all say that the taxes don't cover the pay out... I'm so mad that you think we are that stupid. I did not have any option but to pay out of my check every week for twenty-five years not only on my forty hours but if I made overtime it was taxed so hard that working it was not profitable in the long run.
That money supposed to be put into an account drawing interest and LEFT ALONE! But, now it has been threatened every time congress does not control there spending. STOP OBAMA AND HIS SPENDING SPREE!!!!!!! HE IS NOT KING AND HE SHOULD BE PAYING HIS OWN WAY ON VACATION AND LEAVE THE SECRET SERVICE BOYS AT HOME!!! I MEAN HE SAYS GUNS ARE BAD FOR US LET HIM LEAD THE WAY!!!
OH, JUST A THOUGHT...I'M NOT THE ONLY THINKING SENIOR OUT HERE!
send me a response to this at if you think I am wrong.
I look forward to hearing from you
Arthur G. Gray
Direct from the SS admistration:
Social Security is a compact between generations. Since 1935, America has kept the promise of security for its workers and their families. Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today's younger workers are ready for retirement.
Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.* We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.
*These estimates are based on the intermediate assumptions from the Social Security Trustees' Annual Report to the Congress.
Yes, we are screwed if you are 46 or younger. Get the wonderful government out of our pockets and retirement planning. Give the 12.4% back to the wage earner and company. So, couldn't we only be taxed at 75%?
Pay back the IOUs to the social security fund with accrued interest you thieves.
How can government be one of the last groups with a set pension on top of Social Security. The government looks out for the government and we have no one in congress really looking out for the people. The american dream is dead and soon social security will follow because we elect people who say they look out for the people but really they look out for themselves. We the people deserve what is coming down the road because we the people keep putting the same people in office.
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