Nobody (of consequence) is proposing eliminating Social Security or proposing cutting benefits for current recipients. But the fact is we must do something to make Social Security not only actuarially solvent for another seventy-five years, but permanently sustainable.
It is also a fact, like it or not, that Americans are addicted to Social Security and no matter what, the vast majority of Americans will never save enough (many will not be able to) or take sufficient responsibility in planning for their retirement income. So, Social Security is here to stay, period. Having acknowledged that let’s move on to designing a program that works fairly for everyone.
This does not automatically mean raising taxes (although that is a simple solution) or raising them on only a select group of Americans. And it should not preclude investing some of the trust in the equity markets. Investing a portion of the trust in stocks and bonds can raise the interest earned by the trust and no matter what, the benefits are still guaranteed by the full faith and credit of the federal government. Ironically, many seniors believe Congress stole the Social Security trust money so what have we to lose? 😁
Below is a new approach to consider. Convert the benefit (for future beneficiaries) to a fixed amount designed to meet an above poverty level goal. Conceivably this would allow a lowering of payroll taxes thus freeing up money for current pay and savings. It would also send a clear signal that a known income level will be available, but there is more you have to do. By the way, the 2016 maximum Social Security benefit is $31,668.
And we can make Social Security work better at combating poverty in old age. Simply consider this: About 9.5% of Americans aged 65+ have incomes below the official poverty threshold, which is $11,367 for a single person over age 65. The average Social Security retirement benefit in 2015 was $16,104, about 42% above the poverty threshold. In other words, Social Security could pay every retiree a poverty-level benefit, taking the over-65 poverty rate from nearly 10% to nearly 0%, and still have money left over.
Given my druthers, that’s pretty much what I’d do: shift Social Security toward the approach used in New Zealand – and to lesser degrees the UK, Australia and Canada – and have the program pay a flat dollar benefit designed to lift nearly every senior year out of poverty. On top of that, people would need to save for retirement on their own – and we’d give them the tools to do that by expanding access to retirement plans and automatically enrolling every worker in his employer’s 401(k). I’d also eliminate the Social Security payroll tax at age 62, a step that would encourage delayed retirement.