Observations on life

Fixing Social Security – give it a try yourself

It isn’t hard to craft a balanced combination of changes that will fix the problem. I cooked up my own solution using the calculator on the Committee for a Responsible Federal Budget website.

These changes would make Social Security solvent for the next 75 years. You may have better ideas. But the point is, a combination of changes will easily fix Social Security and increase benefits.

Read the full story at Under Construction – HumbleDollar

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2 replies »

  1. Here we are, it is 2018, and you are looking for solutions? What a joke!

    The Government Accountability Office issued a report a year ago GAO-18-111SP, “The Nation’s Retirement System: A Comprehensive Re-evaluation Is Needed to Better Promote Future Retirement Security” (https://www.gao.gov/assets/690/687797.pdf ).

    The report asserts: “The U.S. retirement system, and the workers and retirees it was designed to help, face major challenges. …Fundamental changes have occurred over the past 40 years to the nation’s current retirement system, made up of three main pillars: Social Security, employer-sponsored pensions or retirement savings plans, and individual savings. …there has been a marked shift away from employers offering traditional defined benefit (DB) pension plans to defined contribution (DC) plans, such as 401(k)s.” Importantly, they note: “The three pillars of the current retirement system in the United States are anticipated to be unable to ensure adequate benefits for a growing number of Americans due, in part, to the financial risks associated with certain federal programs. Social Security’s retirement program (Old-Age and Survivors Insurance): Beginning in 2035, this program is projected to be unable to pay full benefits.“

    They recommend, in part “Congress should consider establishing an independent commission to comprehensively examine the U.S. retirement system and make recommendations to clarify key policy goals for the system and improve how the nation promotes retirement security.”

    If there is a “retirement crisis” in America, it isn’t the result of less access to DB plans or the dominance of 401(k) plans. While it would be nice to see Congress create a national retirement policy, that isn’t it either. If we have a “retirement crisis,” it is the result of Americans’ failure to save and a government promise of Social Security benefits that are much greater than projected tax revenues.

    Failure to Save: Without exception, for the past 35 years, every American wage earner has had access to a tax preferred savings vehicle – the Individual Retirement Account. A worker age 25 in 1982, who contributed the maximum each year and earned 5 percent on his or her investments could retire at the Social Security Normal Retirement Age of 66 and use the combination of savings and Social Security to maintain his or her pre-retirement standard of living. Most wage earners have also had periods of employment where their employer sponsored a plan.

    Social Security Funding: In June 2017, the average Social Security benefit was $1,369. About 61 percent of retired workers count on Social Security to provide at least half of their monthly income. So, in 2035, when the Trust funds are exhausted, without action, benefits will be reduced to match what can be financed by payroll taxes. This is nothing new – it’s been known since 1983, which was the last time Social Security was reformed. See: https://www.ssa.gov/OACT/TR/2017/tr2017.pdf

    Social Security Reform Over the Last 25 Years:

    November 5th, 1993: President Bill Clinton, by Executive Order #12878, created the Bipartisan Commission on Entitlement Reform (the Danforth Commission) to evaluate entitlement programs – specifically Social Security and Medicare. The Commission never reached consensus and couldn’t get all members to agree on even an Interim Report. Subsets of the commission members made their own proposals. None gained any traction, nor action. See: http://www.presidency.ucsb.edu/ws/index.php?pid=61571

    February 5, 2005: President George W. Bush made a reform recommendation to add personal accounts and change the COLA. These proposals triggered great criticism, and no action was taken. See: https://georgewbush-whitehouse.archives.gov/infocus/social-security/ See also: https://georgewbush-whitehouse.archives.gov/news/releases/2005/04/20050428-7.html

    April 27, 2010: The bipartisan National Commission on Fiscal Responsibility and Reform (often called Simpson-Bowles) met to recommend fiscal reform, including recommendations to reform Social Security. Despite widespread popular support, the report failed to get enough support to send it to Congress for approval.

    June 1, 2016: President Barack Obama, nearing the end of this second term, reminded us that Social Security’s finances needed strengthening. “We should be strengthening Social Security… it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned.” No proposal was ever made. See: https://obamawhitehouse.archives.gov/the-press-office/2016/06/01/remarks-president-economy

    Today’s GAO report echoes President Obama: “… (we) better ensure a secure and adequate retirement, with dignity, for all.” But, it offers no plan of action other than another committee.

    Assuming the changes suggested in this post are implemented, keep in mind that 10, 20 or 30 or more years from now, we will be back here discussing what is now needed to “save” Social Security.

    Instead, those serious about creating an indefinite funding solution aren’t going to come up with a bunch of changes based on what we know today, but will put in place an annually self-adjusting, dynamic pricing system that will solve the challenge, today, tomorrow, indefinitely:
    – Individual choice on available options for filling the funding gap,
    – No benefit improvements beyond current provisions, without a super majority vote of social security taxpayers (not voters, not social security beneficiaries),
    – A legally binding contract between Social Security and its taxpayers/beneficiaries, to provide a minimum benefit to survivors/decedents equal to each individual’s employee contributions less any benefits actually received.

    The rule of thumb is that individuals will more willingly accept difficult decisions where they have a say … where they get to choose the method of closing the gap. So, the solutions mentioned above, or a combination of those solutions, should be available for each and every Social Security beneficiary (whether working or retired) as a choice for filling the gap. The default might be increasing the payroll tax for those still working and for those near or already retired, a reduction in benefits proportional to the underfunding. The solution is dynamic, and final, and indefinite through an annual repricing of the pricetags for the available options. And, if, over time, it turns out that the gap in funding was a mirage, as Democrats claim, the annual repricing of options will ensure taxpayers and beneficiaries will not overpay.

    The largest shortcoming of the proposed solutions identified in the past (and above) is that others decide … and you end up with endless lobbying about “fairness”. Similarly, projections over 75 years are certainly inaccurate, so, this is not a solution – but will require more changes, and more wrangling and lobbying.

    Finally, “fair” is in the eye of the beholder. We heard this in the run up to health reform … everyone should have access to “affordable, quality health care coverage”, and “someone else should pay”.
    I heard it loud and clear – “I want the best health care coverage YOUR money will buy”.

    So it will be here. Those already retired will encourage changes that raise taxes on workers. Those still working will favor taxes only on “the rich”, or reductions in benefits for retirees.

    Closing the funding gap will be delayed unless and until the trust fund is exhausted. The only alternative that might prompt action is where individual taxpayers and beneficiaries are given control over how to close the gap.

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    • What a joke indeed. No excuse for state of Social Security no excuse for individual lack of preparation

      Dick Richard D Quinn Blogging at Quinnscommentary.com and HumbleDollar.com @quinnscomments

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