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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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
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.)
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.
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.
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.
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.
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