Politics

Increasing Social Security Benefits Would Wreck Retirement Security – Forbes

2014

I believe we can all agree that Social Security is essential and must be preserved and perhaps some day even improved, but not today. Even the most ardent conservative should recognize that the Social Security system is the foundation of income for the average older American and that is not going to change. On the other hand, it should not be (but is) the sole or even major portion of income in retirement for many older Americans. Generations have become dependent on the programs promises and lived their life accordingly, but that’s another story.

From an article from the Employee Benefits Research Institute, Security “Blanket” MARCH 21, 2014 By Nevin Adams, EBRI

Finally, while the trend line for this particular group isn’t encouraging, it’s worth noting that Social Security was cited as a major source of income for nearly two-thirds of the current retiree respondents to the 2014 RCS (as it has been over the history of the RCS), even though current workers tended to have lower expectations for the primacy of Social Security benefits in their retirement income stream. One need only look to the replacement rates that Social Security is projected to provide to appreciate the significance of that program as a retirement income source for many, particularly low- and middle-income workers. In fact, a recent EBRI analysis of data from the HRS indicates that Social Security provides more than half the total household income for more than half those ages 65-74, as it does for roughly two-thirds of the households over that age.

20140314-141637.jpgThe long-term outlook for the Social Security Trust Fund is not good, even worse for the Disability Trust. The Trustees have made it clear that reduced future benefits and or increased taxes are necessary to keep the Trusts solvent under the current structure. See below from the last Trustees report.

In the face of these facts we have Democratic politicians pushing for higher benefits via a more generous cost-of-living adjustment paid for by higher taxes on upper income workers; the very people who will be needed to save the existing system.

Then we have an Administration that has done nothing to address the Social Security problem for over five years and has even reversed position with regard to a modified COLA. Shouldn’t our priority be to preserve what we have?

Increasing Social Security Benefits Would Wreck Retirement Security

Jeffrey Brown, Contributor

A number of Senate Democrats – including Senators Elizabeth Warren, Sherrod Brown, and Bernie Sanders, among others – have publicly supported increasing the generosity of the U.S. Social Security system.  Just last week, as reported in a Washington Post blog, Senator Jeff Merkley of Oregon jumped on board by announcing his support for shifting to a elderly-cost-of-living index that would increase Social Security expenditures in the years ahead.

Decades of research by academic economists, bipartisan and non-partisan commissions of experts, the Congressional Budget Office, and even Social Security’s own actuaries have proven beyond a reasonable doubt that the current system is financially unsustainable.  It is puzzling, therefore, that any rational policymaker would suggest that the answer to the financial shortfalls is to increase benefits.

But that is because these Senators are acting as politicians rather than as policymakers.  After years of playing defense on Social Security, some Democrats appear to have concluded that arguing for a benefit increase is the best way to avoid a benefit decrease.  The problem is that trying to maintain the status quo is mathematically impossible and fiscally irresponsible.

Last year, President Obama acknowledged the need to reduce long-term expenditures when he expressed support for changing the cost-of-living calculation in a manner that many economists consider to be a more accurate measure of inflation (the chained CPI).  In addition to being a smart technical fix, this action would reduce long-term Social Security expenditures.  Unfortunately, the backlash from the liberal wing of his own party caused the President to drop this proposal from the budget.

via Increasing Social Security Benefits Would Wreck Retirement Security – Forbes.

The Elizabeth Warrens and socialist types like Sanders are outright dangerous in my view. They are idealistic and short-sighted. They focus on one aspect of a problem and ignore the consequences of myopic actions. To improve the COLA raises taxes, to fix Social Security raises taxes, mostly on the very group of people who will someday need Social Security the most. Recall the angst over ceasing the temporary 2% cut in SS payroll taxes; the economy was going to collapse, the middle class was going to be hurt, oh my oh my! Well that 2% is nothing compared with what it will take to fix Social Security and to increase its benefits … suddenly higher payroll taxes are of no consequence❓

There are many ways to fix Social Security without dire consequences on the poor, but politicians are more interested in pandering to seniors to curry votes.

Following is the conclusion about the state of the SS Trust from the last Trustees report. Please note that 2033 is only 19 years away, plenty of time to affect many of the current Social Security beneficiaries.

Conclusion

Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2013 and remain higher throughout the remainder of the long-range period. The projected combined OASI and DI Trust Fund asset reserves increase through 2020, begin to decline in 2021, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits. However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 80 percent of DI benefits.

Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance. In the absence of a long-term solution, lawmakers could choose to reallocate a portion of the payroll tax rate between OASI and DI, as they did in 1994.

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points [Note1] (from its current level of 12.40 percent to 15.06 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 16.5 percent applied to all current and future beneficiaries, or 19.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2013 or later; or (3) some combination of these approaches would have to be adopted.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 58 million beneficiaries and 163 million covered workers and their families in 2013. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations .

🔻🔻🔻🔻🔻🔻🔻🔻🔻🔻
[Note1] The necessary tax rate of 2.66 percent differs from the 2.72 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund reserve equal to 1 year’s cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.
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8 replies »

  1. Just make sure all you damn government employees get your damn raise and the hell with the Senior Citizens. You people make me sick and if you want to or care at all about the situation we are in don’t take a raise this year and see how many millions of dollars we would save.

    Dale W Whitney

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    • Why in the world do we seniors deserve an increase greater than that dictated by inflation? What right do we have to take from the younger generations? We had a lifetime to plan, why are we entitled to MORE?

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  2. why dont those in Washington..take a cut in pay?? maybe that would provide money needed for Social Security?? .One thing also I dont understand is why do they continue to pay ex-presidents..a salary..what exactly are they doing to earn this salary?? they are no longer employed?? someone please explain this to me

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    • Presidents are currently paid a salary of $400,000. Up leaving office former Presidents currently receive a pension that is equal to the pay for Cabinet Secretaries (Executive Level I), which is $199,700 in 2013.

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  3. What’s so fascinating about SS is its LACK of complexity. This is unlike Medicare or Obamacare, with a thousand moving parts to attack. We either put more in the SS trust fund, or we take less out. It really is that simple

    Since it appears completely unfeasable politically to raise more taxes after Obamacare’s taxes, and all politicians fall over themselves to proclaim their loyalty to current recipients, it seems there is one solution America is going to be forced to accept: a dramatic rise in the retirement age.

    The retirement age was set at 65 when life expectancy was… 65. Moving the retirement age to 67 when life expectancy has moved to 80 is a recipe for bankruptcy.

    You’re right, people don’t want to hear that. Hey, let’s not confront the problem. Let’s fill the news with faux outrage about “inequality” for one more election cycle.

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  4. You are absolutely correct. Social Security cannot be sustained in the long run without significant changes. If more people understood what you wrote today the pressure on politicians would increase and something would be done to fix it.

    The basic problem is not hard to explain, too little is going into the system and too much is going out. Social Security was established when for every person drawing benefits, there were eight or nine putting in. Now there are fewer than three putting into the system for every person drawing from it.

    What is most frustrating is knowing that while the adjustments to Social Security must be significant, they do not have to be drastic, particularly if the changes are made in the next few years.

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  5. at this point i am not so sure politicians are pandering to seniors with a meager roughly 1 per cent ss cola. at the same time food stamp recipients have obtained a 30 per cent increase in benefits under obam’s rule. no doubt many of these are also seniors.the artificial monetary manipulation of the economy has also devastated senior”s efforts to get by in their retirement years ….again with cd(s) barely paying one percent interest. for many seniors, retirement seems elusive if not impossible.

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    • Politicians don’t set the COLA. The formula is set by law and the change in inflation is just what it is, but people don’t want to hear that.

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