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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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Jan 11, 2013 1:16PM

Lets make it easier yet, give me my money back with interest.

Jan 11, 2013 1:15PM
LOL, the Dems will steal from the SS fund and give it to illegals, the unemployed and the trillion dollar per year welfare costs as part of his Free Healthcare, Free Education, Free Food, Free phone program - at the cost of the working class
Jan 11, 2013 1:13PM

i din't know I was one of the "rich" people who's taxes were going up! What a bunch suckers we are!


Jan 11, 2013 1:13PM
all that needs to happen is take off the limits, and everyone pay on 100 percent of thier earnings, as of now, 125000 is max, anyone makeing over that  doesnt pay anymore ssa tax, not right, so someone makeing 125000 or less pays 100 %of his income to ssa, someone makeing 500000 only pays on 25 % of his or her income...why... not right people, and not fare.
Jan 11, 2013 1:12PM
Once again their best solution is to levy higher taxes on people who make more money - while continuing to give SS to those to put very little in...that is Wrong.
Jan 11, 2013 1:11PM
My comment below failed to mention that demos controlled congress most of my life,  85 years.

Jan 11, 2013 1:11PM
First of all I have posted this a few times over the past several months.  Social Security would be fixed if you just increased employer matched contributions by .05 to 1%.  This is simple mathematics that I have done several times.  Also, these are not entitlement programs, this is something workers and some disabled have paid into all of their lives with the guarantee that they would be able to retire and try to enjoy the remainder of their years.  Growing old or disabled is NOT supposed to be a punishment,   Also, by law you cannot retax something that has already been taxed this is the same as double jeopardy and will meet with many court battles if it was to go through.  The author says what they say  now because it does not affect them but when it does they will totally change their tune.
Jan 11, 2013 1:08PM
Term limits for congress might have saved SS. Spending the SS trust fund for other vote buying schemes certainly hurt it. If they knew they would be there only eight years, they would waste less money on things they think would keep them in office.                                                           Wasteful spending caused inflation made all the money older people earned, saved, paid into SS much less than the dollars they received from SS because the dollar is worth less, much less.
Jan 11, 2013 1:07PM

Come on now Folks! You know that Social Sec. has not, will not, and is not a Fiscal problem related to our Dept. FIX what? It isn't broken and mess with it; it can break it with the EXCEPTION of Removing Waste and Fraud. STOP using Social Security as a Health Care Fund for people under 62. Build a NEW funding program for all other than Retirement Income and let us Seniors live in peace.

As for Medicare....Stop and remember we PAY our fare share. We pay over $3000 each year from our small retirement income for Medicare Insurance, not like its FREE? Then we pay for our 20% C0-pay, & all of the Over The Counter Drugs not covered by insrance. Cry...cry...leave us alone!


Jan 11, 2013 1:06PM
Move State and Federal Government Pensions into SS and make government employees live off SS like everyone else.  Delete people who put very little into SS.  Watch SS make a big rebound.  If SS is an entitlement so are Government pensions that were funded by those now on SS.
Jan 11, 2013 1:04PM

The COLA should NOT be messed with.  It doesn't keep up with real inflation as it is.  Their chained fix would make it even worse.


According to the AARP, increasing the tax by 1% and raising the retirement age to 70 would solve the issue for generations to come.

Jan 11, 2013 1:03PM
Good grief this is the easiest of the big 3 to fix, so let's get it done now! All of these are good suggestions. And the beauty of multiple ideas is you only need to make smaller adjustments to parts in order to get the desired impact on the sum...
Jan 11, 2013 1:00PM

Removing the SS tax exemption on wages above a limit would go a long, long way to promoting continued solvency to the Social Security annuity program. And it would would be far less punitive to far fewer people than adopting a "chain-weighted" consumer price index for Social Security's cost-of-living adjustment.


Face it, that index is based on the notion that when the times get tough, folks don't really feel all the pinch because they buy down -- you know, hamburger replaces steak. So they don't really need to have all their buying power continued for them.


But with those qualifying for SS -- the older and the elderly -- the predponderance of expenses aren't so adjustable downward: They are hospital, and doctor, and clinic, and surgery, and they are not available mailorder or at Wal-Mart or at Crazy Danny's Discount Surgery.

Jan 11, 2013 12:55PM

In act a law that puts it off limits to the president and his minions and use it only for what it was designated for, the elderly Stop the stealing in  Washington and stop the welfare abroad to all these foreign governments they have their own presidents and dictators so why are we supporting them? Let them figure it out! bring those trillions back home

Jan 11, 2013 12:55PM
Why not allow all income to be taxed above 110,000 instead of stopping. After you make 110,000 in income you don't have anymore SS take out. This would be a huge income stream for SS.
Jan 11, 2013 12:53PM
I love how Congress raided the Social Security Trust Fund, and now want us to pay more in order to make up what they took.  Sometimes, I can't for the life of me understand how so many Americans continue supporting either of these two parties!!  Neither concern themselves with us or what is best for the people.......everything they do is about what's best for their particular party.  The political divide in this country is by design of our politicians, to keep us busy fighting with each other over meaningless rhetoric, while they stuff their individual pockets with as much as they can, hoping nobody ever notices.............................America had better wake up and wake up soon!!
Jan 11, 2013 12:53PM
another softball article. The expiration is HIGHER TAXES!!!



Jan 11, 2013 12:50PM
All planned out. In early 1970’s both political parties endorsed and released “Workforce 2000” plans starting with the Fortune 500 companies. Workforce 2000 and NAFTA is Americas contribution to the new global economy. Jack Welch, then CEO of GE designed the model and the rest of the big leaguers followed in his foot steps. He started sending “Low Tech” devices like toasters and coffee makers over to get the Chinese farmers out of their fields. Look where they are today. I remember it well working for a large aerospace company in So. Cal.
We attended a four hour presentation on how America was going to change. “Workforce 2000”. We were to become a service oriented country. How labor intensive work was going to be out sourced. How Chinas average pay scale was a whopping .35 cents per day. The man hours it took us to build one large airplane would be an equivalent cost to the most expensive BMW motorcar. Were all our stock holders and board of directors excited. The Demographics of America were also explained. Guess what? The Hispanic communities was going to be the major population in the LA basin area. That’s right. See where we are today. All part of the plan and don’t forget, all endorsed by both political parties. Then the whipshooding began. Jack Welch implemented a theme called, “Keeping the Ideas Coming”. Ref. March Fortune 500 article. With the threat, or inevitable loss of our jobs, he started a manipulation cooptation strategy to pick the employees brains and make them think they could compete and save their jobs/asses. Manufacturing Engineers and digital camera’s were used to pave the way for the Chinese farmers to help with their training. The CEO’s, corporate leaders and politicians are raking in all the benefits.
So when I hear and read about this new economy BS, remember our government has it all under control. The part I have trouble with is if people are not working and or making half of what they use to make, income tax revenue will drop as well. How dose a tax system expect to sustain and pay for basic services, afford a healthcare program and frequent handouts to the world in trouble?
In 1992 United Auto Workers union, (UAW) predicted that only 4% of the American workers will be represented by a union. Police, fire services and a few more government jobs will be represented to show the world America is still labor friendly.
As Americans Change so to speak and our earning power diminishes Americans will eventually take what they can get. Just like other third world counties did. Its Americas turn to become the stepchild.
And now Obama has brought in Jeffrey Immelt CEO from GE. Immelt cut his teeth under Jack Welch and Harry Stonesypher. GE was the model corporation which has led to American’s loosing their jobs. And now a Muslim in charge of Homeland Security. Amazing how everything predicted is coming to pass.
Wal-Mart has become the new commissary to America by design..
I believe the first clue to Globalization was when our Department of Weights and Measures was consider converting over to the Metrics System in the 70’s..They were laying out what has come to pass now. Many Presidents, many Administrations have had opportunity to shift gears. They didn’t. Then came the Euro idea. Thank God we did not bite that apple.
Sad how all these article writers have just gone along with it too. If they did a serious “Cause Analysis” they would find a whole new prospective on this mess.
Our future holds, “Beans, Blankets and Bullets.
God bless those who believe in him.
members of a union--was 11.8 percent
Public-sector workers had a union membership rate (37.0 percent)
more than five times higher than that of private-sector workers (6.9
Workers in education, training, and library occupations had the highest
unionization rate, at 36.8 percent,
while the lowest rate occurred in sales and related occupations (3.0 percent).
Jan 11, 2013 12:46PM
The problem with Social Security, Medicare and Medicaid is that they are funded with a Regressive tax. These programs will continue to have problems until this is corrected and these taxes are levied across all income levels in a progressive manner.
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