Everyone knows it's broken, so let’s fix it
If you aren't paying attention, and don't know it is broken, here are a few facts:
There is a Trust Fund that was accumulated when there were over 15 workers contributing for everyone retired on social security
Today, there are 2.6 workers for everyone on social security and the fund is depleting every year
The fund will be gone in 2033.
If we do nothing, and follow current law, all recipients will have a cut in benefits so the income will match the benefits paid. That cut is estimated at 26%.
If we change the law to pay full benefits it will require major increases in payroll taxes, or massive government subsidies, funded by either major income tax increases or more borrowing.
And if you are not paying attention to the Federal debt, our Federal debt is already over the top, see Facts, No Spin # 107, Grumpy Explains the Federal Debt Crisis. It is around $32 trillion dollars of interest bearing debt, and $122 trillion of total obligations and rising rapidly. Isn't that special? Anyone got some spare change?
Since we know Social Security is broken, and trying to fix it when the fund is gone will mean awful financial choices, how about if we just fix it now.
There are many approaches and alternatives. The best approach is to move to private investment accounts for each individual. It has been implemented with great success in many countries.
Here is an overview of how that might work, the details are beyond the scope of this email:
Start with an absolute requirement that everyone on SS will continue to get what is currently planned. No one is cut off from their expectations of retirement income.
Design a 20 year + or - transition plan into privately owned investment accounts.
Every year, more of your ‘normal’ payroll taxes are paid into your account
Over time, you will own your account which will provide for your retirement, with many flexible choices on how to invest it and use it. It would be your asset, and would be passed on to your heirs when you die, and it would be a better retirement income than the present system.
As your regular payments are diverted into your private account, there will be a shortfall in the fund to pay current beneficiaries. This could be covered by some combination of the following programs:
A small increase in your SS tax all of which goes into the fund, not your private account.
Raising the cap on SS tax, so higher income individuals would pay more, all of which would go into the fund, not your private account.
Means test the SS payments to beneficiaries, so high income individuals would get less, lowering the payouts and minimizing the shortfall.
Slowly increase the retirement age, minimizing the shortfall. .
Any remaining shortfall is covered by the Federal government
This may cost the government something now, but will completely eliminate the large Unfunded Obligations in the future the government is now facing, or cutting benefits to SS recipients when the Fund is depleted (or other bad alternatives noted above).
This plan could offer incentives to invest more in your private account, like taking some percentage of your pay as additional contributions to your fund, matched by your employer.
There are many ideas and proposals, this is just one and needs professionals to analyze and evaluate how this might work.
The important point is that we need to fix it now, before the fix is unworkable, which will happen if we just ignore it. WE ARE GOOD AT IGNORING CRITICAL PROBLEMS. SAY NO TO KICKING THIS CAN DOWN THE ROAD ANY FURTHER.
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