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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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Many Elderly People that I know and have met try to survive on $577. or $670. a month from Social Security - they don't have any other income and a lousy 1 1/2% or even 5% cost of living increase does not even start to cover the actual cost of living increases.

These people have worked all their lives to support themselves, SS and the US Gov....but now that they aren't slave labor to pay taxes to a BS Gov that don't give a damn about them - the Gov throws them Under The Bus.

Come on.......get real.......the very minimum paid to anyone on SS that does not have any other income should be $2000 a month - not $500

They still have to live under the bridge - or under the Bus that they got threw under

Jan 10, 2013 9:04PM
What about cutting all congress and senators medical benefits back to major medical only, they pay for their family coverage out of pocket and their pay is reduced and adjusted to 10% over average income, eliminate their retirement entirely and prohibit them from printing memoirs after leaving office.  Also, prisoners receive full, free medical and education, why not stop that? Common sense only applies if our elected officials care, which they don't.  "Representatives?" Not in a long time. Oh, also get rid of lobbyists for good measure.
Jan 10, 2013 9:04PM
I say this to congress, Get ready for war from the elderly. They are going to come at you dumb-azz's with canes, dentures, and empty food cupboards. They are going to beat your lousy heads in with rolled up bundles of plastic bags from Dollar General and Walmart. (Why these two stores, well because they will be serving the only viable source of purchasable product before they themselves go over the cliff.
Jan 10, 2013 8:59PM
Age to collect SS should be raised to 70 years of age for people born after 1956.  Early collection of SS should be moved to age 66 for 1956 born people.  We are living longer and working longer--so expand the age for collection of SS.
Jan 10, 2013 8:52PM
This is what angers me: this problem with SS has been known and un-addressed for over two decades.  Both political parties are responsible for this mess....We have an IRS code that is so confusing that one cannot do annual income tax forms without professional assistance or software....Hardworking individuals have seen any assets or savings go up in smoke in the last decade or more....Education is no longer a guarantee of earning power....The American Dream of a decent retirement has gone away as has everything else. 
Jan 10, 2013 8:51PM
carter gave social security away too  illegal immigrants coming to america without putting a dime into. clinton and gore giving the deciding vote to tax s.s. stop putting lawyers into office there ****ing everything up.
Jan 10, 2013 8:46PM
fixing SS is very simple but the lawmakers probably won't go for it.  first step, make it illegal for the congress to borrow money from SS.  As part of the debt problem, start paying back the money already borrowed over the last forty threee years plus interest.  in 1958 there was a 3 billion dollar surplus in the SS trust fund.  the newly elected democratic majority in both houses decided to borrow the money to pay for their "pork barrell" spending.  when the bill was vetoed by President Eisenhower, the Dems. overrode the veto and made it so that SS went to the General Fund instead of the SS Trust.  now no money and no raises in SS payments to elderly Americans, who worked all their lives paying their taxes and now can't get their money because it has been frittered away by successive Congresses.  so start paying it back.
Jan 10, 2013 8:45PM
By the fact that used the words common sense that statement wouldn't make past the beltway.
Jan 10, 2013 8:44PM

1) Admit that it's a TAX not a savings account.

2) Tax ALL income for Social Security and Medicare.

3) Make benefits needs-based.  (My boss retired in 2002, had a 401K worth over $2 million and owned 4 houses outright - he shouldn't get government benefits.)

Jan 10, 2013 8:41PM
This is a terrible time to cut benefits. SS keeps 21.4 milion people out of poverty.  Since the Crash of 2008 their relatives are jobless and/or house asset impaired, etc. All that needs be done to fix it is to take the cap off. That only would effctg 6% of covered recip[ients in a given year and make the system.See "The Evolution of Social Security's Taxable Maximum" on its website.
Jan 10, 2013 8:41PM

I think there is a easy way to shore up SSI.


Stop the current retirement plan of congress.  Serve 2 yrs and recieve full salary for life. WHAT!!!!


Take all the money in this so called plan and move it to SSI.


Then cut congress' wages to say $60,000 per year vs the current $177,000 and let them contribute to SSI and a 401K like the rest of us.

Jan 10, 2013 8:37PM
Fixing SS is easy ... the only hard part is how to make it work while still allowing the government abuses the peoples trust while using it. Here's how to REALLY fix it.

1) When I look at my paycheck, I have three taxes taken out: SS, Medicare and Federal. Somehow, when it gets Washington, they only see one. THIS HAS TO STOP!

2) Make a law that says SS is only for SS. That's it! No 1000 page doc ... just a few words. At this point, SS is not part of the debt any more. Its separate and self sustaining and yes, we will have to pay our fair share to keep it going. Considering that some businesses won't even give their slaves healthcare, it may be the only thing the average worker ever gets for retirement.

3) We know how old the general population is. SS taxes will have to raised as the population gets older and tax will be lowered as they die off. The rates will go up and down over someones lifetime.

This is easy. The hard part like I said earlier, is that the government likes to take SS and play with it. Stop the playing around with OUR money and things will work out. BTW, there is NO WAY we need to privatize SS. Yes, I'm sure that Wall Street has paid out congressman a lot of money to turn it over to them, but I would rather trust an idiot government official than a greedy Wall Street crook. Imagine what would have happened if they controlled it during the recession. Keep them away.

Jan 10, 2013 8:36PM

Why should the people who are forced into this 'Ponzi' scheme be asked to retire later or accept less? The government employees retire earlier (on average 12-15 years earlier), plus they retire at 90-100% of their final year's salary as compared to the meager pittance the rest of the private sector is told to live off, yet we do nothing to curb this ridiculous retirement package for them.  The people exist to simply supply the government workers with a golden parachute. 


Jan 10, 2013 8:36PM
The only comment that deserves to be printed is the fact the Government stole this money robbed the fund by borrowing with no intention of paying back.  No they are trying to prop up the fund by having the tax payers and recipients pay for their waste. Prisons are full of people who stole pennies compared to what our own government stole from us.
Jan 10, 2013 8:35PM
You said nothing about the government putting the SOCIAL SECURITY Fund in the General fund, thats where the problem started. Put the full amount back in the SS Fund plus adjusted interest and then lets get on the righ track
Jan 10, 2013 8:29PM
Social security doesn't need to be "fixed"  Just collect on all the IOU's that should have already been repaid (and be earning interest too) and if they don't repay- take away their pay,health care and retirement benefits- see how they like living on $1200 a month. These politicians are supposed to be working FOR the PEOPLE not against us!        Fire Them All 
Jan 10, 2013 8:26PM
There is no fix for social security because it involves politicians.  We are screwed.  So called leaders in our government are incapable of using common sense.  I have no faith at all in any of them.  I feel sorry for the younger generations.  I hope they have watched these incompetent axxholes closely and have learned what not to do.
Jan 10, 2013 8:20PM

Thank you for your wisdom and your willingness to share that wisdom.  I do recall past attempts to prevent the current state of our social security.  It's good to know that I'm not a solitary voice in the wilderness.  I, too, think that it's wonderful to have our contributions to OUR social security returned to prior levels and I do say so as often as anyone will listen.  And I, too, think we need to take positive steps now to save our retirement that we have bought and paid for.

I don't think social security is an "entitlement".  We have paid our way so far and the people I talk to are willing to continue to pay our own way and to pay a little more if that's what it takes to keep this solvent. 


Jan 10, 2013 8:15PM

Tell the government they no longer can borrow from social security and must put back what they have borrowed.  Social security is used for more than seniors, such as, unemployment benefits, vets benefits and even for foreign aid.


If you have a moment google social security and it will just amaze you at what congress uses our social security for, I know I was amazed and P.O. too.

Jan 10, 2013 8:10PM
If our Washington fools had left it alone in the first place there would be no money problem, they just keep living the good free life at our expense and continue to blame us working class, they do not deserve a pension, free health insurance for the rest of their stealing lives, they better start looking at the next election, because the common voter is sick of their B. S.
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