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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.


More on MarketWatch and MSN Money:


Jan 17, 2013 9:59AM

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~

Jan 16, 2013 7:31PM
The retirement age needs to be lowered as people are not living longer, infant mortality has been reduced giving the illusion of longer life spans. Lower the age two years and double the payout. this can be done by lifting the income cap on Social Security payroll taxes. Also financial companies who have gotten rich on hidden fees to your 401k could contribute some of their profits to Social security.
Jan 13, 2013 4:11PM
the only system that works perfectly and will be around for the next few billion years is the solar system. all man made systems are doomed to fail from day one. but don't tell the polititians this. they will deny it.
Jan 12, 2013 2:26PM
Let's sum up the general opinion here:

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.

Jan 12, 2013 11:22AM
obama the beggar in chief. hat in hand does he go to the congress a beggin fo his deadbeat supporters.
Jan 12, 2013 1:24AM

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)

Jan 11, 2013 10:10PM

Reform Social Security To Allow All Who Have Completed Their Quarters To Withdraw Their Monies (All or Partial) Untaxed!

Jan 11, 2013 9:13PM

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!

Jan 11, 2013 8:34PM
Social security was originally intended to be a supplemental income, but since the greed of the corporations have killed pension possiblilities and the 401k's rise and fall characteristics, there is more dependence on Social Security than ever before. We need to lift the cap. The rich don't need to stop paying into the fund, just because they are the luckiest in our society. America is supposed to be a place where all men can pursue happiness, not just the rich ones who inheritted their daddy's wealth or for those who invented something that wasn't stolen from them by a corporation's greed, just to buy a Republican, in the House of Representatives.
Jan 11, 2013 8:33PM
In the Soviet Union they would call this propaganda

Here in Occupied USA it's call journalism

Jan 11, 2013 7:56PM




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!!!




send me a response to this at if you think I am wrong.


I look forward to hearing from you


Arthur G. Gray

tucson, Az.

Jan 11, 2013 7:46PM

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%?

Jan 11, 2013 7:07PM
Make the House and Senate go on Social Security instead of the big full vested after 5 years full paycheck for life windfall they get now and  you would see those suggesting chained price indexing and raising retirement ages sent off to Siberia, never to be heard from again.
Jan 11, 2013 7:01PM

Pay back the IOUs to the social security fund with accrued interest you thieves.

Jan 11, 2013 6:59PM
Read the New York TImes, Jan. 6, 2013, opinion section, page 4.  A Harvard Professor, Dr. Gary King, said that all it will take to fix Social Security is an extra $5 per month per worker starting in 2022.  If that's all it takes, go for it!  
Jan 11, 2013 6:45PM

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.

Jan 11, 2013 6:43PM
big business has manage to extract the most money  from the working class as possible with the support of the government this includes the stock marker and when we retire their will be nothing left to live on .  
Jan 11, 2013 6:42PM
Until we have single payer health care this country can kiss my azz
Jan 11, 2013 6:41PM
I am so ashamed of America! No health care, they want to end SS, Medicare, Medicaid. We have become nothing more than sharp elbows and every man for himself!
Jan 11, 2013 6:41PM
When inmates who ONLY have taken Prozac in prison 1 month get SSI with the help of a lawyer, illegal aliens also collect a little homework and see what parasites can collect...the system will fail.. thanks to our politicians!
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