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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 9:50AM
Social security is and always has been a turkey. I want out.
Jan 11, 2013 9:46AM
The problem with social security is there is people who are collecting that has never worked a day in their lives and work under the table making more money than some people I know holding down a real job. If we would eliminate some of these people there might be some money left when we are old enough to collect what we paid into. I'm not saying there isn't people who need it but there is just as many on SSI who don't. They need to spend more time checking up on those who gets these checks. When you are driving a new car, paying $400 in rent, paying for full coverage insurance, and be thousands of dollars in debt with credit cards you just can't pay for that when you only get a check for $745 a month. That should be a glaring signal for SSA that there is something wrong. I can count about ten people I know who pull this off that is $7450 a month of our tax dollars that we tax payers won't have for our retirement. Does that sound fair to you?
Jan 11, 2013 9:43AM

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!

Jan 11, 2013 9:43AM
I agree that restoring that 2% tax is good for the funds long term prospects. To make the system solvent they should look at increasing retirement age for those not involved with manual labor and they should consider increasing the tax by 1% on both the employee and the employers.

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.

Jan 11, 2013 9:35AM
Fix it? SS is not broken, it's the DONKEY'S in Washington that are broken. I do however understand the thought process in this issue. The solution is simple and requires very little if any thought on the part of policy makers. STOP taking from SS, it should only do what it was built for, Supplementing those who put in when they retire. NO SOCIAL HANDOUTS, RETIREMENT ONLY STUPID. OH, you ask what about all the programs using illegal SS funding? SHUT them down..................... STOP the bleeding now. Yes, lots of words but a very simple solution, so simple that even a donkey can understand it.
Jan 11, 2013 9:30AM
Lets re-elect all of these people over and over and over.   DUH!  Why cannot we vote for a name we do not know rather than follow the same path year after year. 
Jan 11, 2013 9:26AM
I am glad all posters are mentioning the money the government owes the fund. Politicians never mention it. I remember Jimmy Carter taking money out and telling the public he wrote an IOU and promised to pay it back. I remember saying to myself at that very moment that we just got screwed again!!!!!!

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.

Jan 11, 2013 9:22AM
Yeah, I greatly welcome what is in reality just another tax increase. 
Jan 11, 2013 9:17AM

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..

Jan 11, 2013 9:15AM

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.

Jan 11, 2013 9:14AM
Do you realize, that almost all money paid to People on SS goes right back into the economy? The more they get paid the more the economy is stimulated. If they double it and charge triple for medicare  it would make the economy grow; it would also create jobs and more tax revenue?  I know you think this is crazy, but that is because you are thinking the wrong way about money in general. Greed, stops most from seeing it as it is. Many are thinking about, how much they would be getting, when they should be thinking, how much better they would be able to live, when they get it and how much it would help the economy and medicare. Money is money thats all., If you spend it on medicare or SS there is little difference. Or you could say if you lose it on medicare or SS. either way you spend it or lose it. The difference is what you get for your buck! "Got It "!    
Jan 11, 2013 9:13AM
Force Congress and the politicians in general to eliminate or reduce their retirement plans to provide a benefit that is no more than equal to the average SSA payment. See how long it takes to "fix' Social Security!  Social Security recipients have already been hard hit by past changes that significantly reduce benefits.
Jan 11, 2013 9:05AM

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.

Jan 11, 2013 9:00AM
Why not just remove the salary cap?  I believe it's currently at $106K?  Why not raise that ceiling to $250K or $400K so that those who make more, pay longer.  Right now those making $250K max out on contributionsi n May!
Jan 11, 2013 8:57AM
How does  eliminating the tax exclusion for group health insurance so that both employee and employer premiums are covered by the payroll (and income) tax put any money in the SS fund?
Jan 11, 2013 8:53AM
One of the most important changes that could be made to restore Social Security solvency would be to remove the income deduction cap which presently stands at around $113,900. I know the argument to have such a cap is that there is a limit to how much can be received from SS benefits so there must be a limit on how much should be contributed. The argument doesn't hold water when you consider that many people pay into the program their entire lives only to expire before retirement. Therefore, why not continue contributions to the fund for all earnings. It seems to be another area where the wealthy get off better than the rest of the workforce.

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.

Jan 11, 2013 8:44AM

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.

Jan 11, 2013 8:42AM
There should be no increase in taxes or in benefits. SS was not designed the way it is used. It was designed only to meet the most basic needs. There should be no yearly increase in benefits for those already on SS.
Jan 11, 2013 8:41AM

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!!!!!

Jan 11, 2013 7:59AM
lock-box...keep the pols greasy fingers out of it...this money is for retirees , not anything else...thieving bas***ds..
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