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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speaking of the economy i say go to we the people where i have created a petition because of these financial issues our country face.
Here's some more information about this petition:
Reform Social Security To Allow All Who Have Completed Their Quarters To Withdraw Their Monies (All or Partial) Untaxed!
People will scream about the increase but they have to understand that social security is the bedrock of retirement because you can't loose it to the Wall St shills of this world. I retired in '09 at the depths of the financial crisis and saw my investments shrink by 35% but I knew if I didn't sell they would recover (they did). You can't retire on SS alone but most would find it impossible to ever retire without it.
And I can't say it any better than "US Disable Vet" said it below so I will second his statements:
First thing is no retirement income should be taxed.
Second Congress salary should be $80K - $100k a year with term limits.
Third15% flat tax on income and capital gains with no returns.
Fourth get rid of the "Spend it or lose it BUDGET" Congress inacted over five decades ago and rollover unspent funds from one year to another, this will save billions every year on spending.
Fifth downsize government instead of making it larger.
Sixth bring industry back into this country by taxing and tariffing any America companies that went overseas. 70% of manufacturing must be in this country to avoid taxing and tariffing on products being brought into this country.
Plan and simple.. If you did not put anything into SSI then you do not get it.
Some people come to America without stepping a foot on to American Soil with an pre-exsiting conditon gets emergency medical and applies for SSI.. "And we pay for it" They get it.. This needs to be corrected
My Father worked hard , My husband works, Hard Americans work hard.. Why do they that come here do nothing and get it..
Also when they are using projections to say it will be bankrupt. They are counting on everyone reaching their 80's.
Hate to be the one to tell you folks but many of us will drop without every collecting a dime. My father dided at 62. Of all the people I've known and know only a few made it to their 70's and I can count on one hand the amount that made it to their 80's.
With my employeers match I will probably put about $500,000 into this fund by the time I'm old enough to even get the early retirment (62 in my case). with my bennifit amount at 62 it would take me till age 86 to run MY OWN MONEY OUT.
If the politicians collected social security and medi care in retirement there never would have been a problem.But why should they care when they have their own special programs and are set for life.
If you earn, you contribute. That should be the rule and that would fund the program in its entirety according to many economists such as Paul Krugman. Raising the retirement age is rediculous when you consider that people may live longer, yes, but they do so in poor health(see the latest U.S. mortality rates, we dropped again to 16th and 17th for men and women respectively). So it seems counterproductive to punish an already suffering segment of our society by waging a retirement war on them. The simple solution of course is to attain full employment, but the shrinking job market due to offshoring of our manufacturing jobs to cheap labor markets in the name of corporate greed has all but made that prospect impossible to achieve.
The enemy is clearly within the upper echelons of our societal structure We have, for the last forty years at least, waged a war on the lower and middle class. Our workforce has diminished in both size and ability to maintain an acceptable standard of living. Wages have been stagnant. Now the war is being expanded to include our elderly,clearly an enemy that needs to be defeated since it is....what is the word again...oh yes...costly. We have witnessed the systematic dismantling of the fabric of our workforce.We are now implementing "right to work" laws( a euphemism for union busting)throughout the land, and we are defunding entitlement programs as too expensive. All this while we have a bloated Defense budget and provide billions of dollars to other countries in foreign aid. What we really need to do is raise our corporate tax rates, not lower them, enforce collection tactics of our current tax laws, raise individual tax rates beyond the current 39.6% on the super wealthy, and close all loop holes that are not available to all taxpayers
. Othe countries have a higher tax rate than we do(France,Canada,Germany,England,etc.) but they receive national healthcare, generous unemployment benefits, better elderly pensions and an overall higher standard of living.
Before I am told "if you don't like it here, then leave", let me say this, I love this country but it is deeply flawed. The betterment that has been created throughout our history has been due to those who were willing to fight for their beliefs and causes. Unions provided a far greater standard of living but at great cost to those who stood and fought. Today we must continue a much greater fight. Our standard of living has been eroded and must be restored. Our workforce is being attacked right now as fast food operators are reducing workers hours to avoid the letter and spirit of the Affordable Care Act. Now they are coming for Medicare and Social Security under the guise of "we simply can't afford it". We can be more efficient in the administration of these programs but to limit them or reduce services to those most in need is criminal and inhumane. We can do better.
There needs too be a quick and massive "replacement" of individuals that control our national policies. This country is headed for a revolution. America needs a revolution; America actually needs more than one revolution. America needs too reconsider its national and foreign policies and commitments. People need to begin changing the ineptitude of American government. This is probably not the place to be saying this but, it needs not only to be said but also done. Many, very good people have served America and protected her from the enemies from outside her borders. We now need many, very good people to serve her and protect her from her enemies from within. Enemies of poor judgment, ineptitude and lies. America can't be strong with those types of people controlling her. America needs her people, her voice. Mr. Smith it's time to go to Washington.
here's a fact for you guys:
2012- SS trust fund balance 2,717,916,000,000
SS tax collected- 837,827,000,000
Bennys paid- 773,247,000,000
Net increase of 64,580,000,000
They are lieing to you!!!!!
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