From time to time, when we have a few minutes, we go back to being concerned about saving the Social Security program in America. I believe we place even more value on this national retirement program following the recent recession and the decline of 401k profits, along with the willingness of public officials to vacate public pension promises whenever it seems expedient. Personal savings are all too easily eaten up by personal crisis and even 401k funds have had been used all too frequently during illness or during these days of high unemployment, and, sadly it is not usually within our financial capacity to repay these borrowed retirement dollars. We have come to realize that Social Security gives us all some hope that at the end of our working lives we will have some guaranteed income to fall back on which will prevent us from falling into a destitute state. Pair Social Security incomes with a strong Medicare program and destitution appears even less likely.
So I journeyed around the web to see what ideas are percolating there these days with relation to Social Security and I will relay to you the results of my search with a few representative quotes in some cases. It is obvious that the longer we wait to come up with a solution, the more burdensome the solution will probably prove to be.
On Politico, we find Jim Kessler and David Brown, two authors who write about Social Security frequently, posting on 5/31/13 their article entitled, “How to Save Social Security” in which they make the following points:
1. Social Security has 20 years to live.
2. Do nothing – benefits immediately fall by 23% in 2033
3. “The rising cost of Social Security and health care programs is crowding out investments in kids and future generations.”
4. Mid-60’s $3 on investments in education, research, infrastructure/$1 on entitlements – By 2033 $1 on investments in education, research, infrastructure/$5 on entitlements
5. Congress is too dysfunctional right now to fix SS.
6. Their recommendation: “the same two chambers could pass a law that outsources the job to a commission to develop a plan” Then vote yes to adopt the plan, vote no to doom SS.
The rest of this article explains why they believe a commission will work and gives two examples, one of a commission that did work, one of a commission that didn’t.
“In addition, a commission-led fix would give each party something it wants. For Democrats, a Social Security fix is the surest path to more revenue, which would come almost entirely from high-income workers, likely through a partial lifting of the payroll tax. A fix would also protect the vulnerable for generations and guarantee that the program is extended to many more generations. For Republicans, a fix would narrow the gap between total federal spending and revenue. And it would end the Democratic drumbeat that Republicans are out to end Social Security as we know it.
A national commission on Social Security is modest and practical. It should guarantee solvency for at least 75 years. Members of Congress should be required to either vote yes or no, or offer a substitute amendment that also achieves 75 year solvency.”
The next article I looked at is from the Wall Street Journal for June 17, 2011 and is called “Saving Social Security”.
The introductory paragraph contends:
“Social Security actuaries estimate that the current payroll tax of 12.4% (divided evenly between employers and employees) plus income taxes paid by beneficiaries will not raise enough money to fully cover all of the benefits that have been promised over the next 75 years. Specifically, they put the gap at 2.22% of taxable earnings. Put another way, the payroll tax could be boosted by about 2.22 percentage points, or benefits could be cut by an equivalent amount, to close the gap.”
This site has an interactive graphic tool. It allows you to choose an alternative fix for Social Security and then the arrow on the chart moves to show you how much change each option would bring.
On the site Monday Mornings Economist appears a post with the intriguing subtitle-style info “An Independent Opinion – Unadorned”. This author, Stephen Herrington, says that government has lost the political will to repay the bonds which the Social Security Administration purchased.
This article argues that the Social Security program is the best vehicle for retirement savings and presents an altogether interesting point of view. Here’s a quote:
“Social Security is in trouble, no doubt about it. It is in political trouble. The most cited problem of Social Security is that the ratio of workers to retirees is changing. There are fewer workers relative to retirees, currently 3.3 to 1 and 2 to 1 in 2040. Social Security estimates tend to support that it will not get much worse than that.
It is true that the support of the baby boomers, being a disproportionately large age group and coincident with substantial increases in life expectancy, could not be sustained under the old pay as you go system. The chairman of the Federal Reserve, Allan Greenspan, ostensibly saw the problem coming. He, in a political capacity, advised Social Security to increase Social Security taxes on baby boomers in 1982. That happened and baby boomers have been paying higher taxes than their forbearers ever since, to “save up” for their benefits beginning in about 2015.
It was not a conceptual problem then, but has become one. Where do you invest very large amounts of money? The best, safest saving vehicle in the world was and is the U.S. government bond. Unfortunately for the baby boomers, the U.S. government has lost the political will to repay those bonds. Since default is not a likely option, the U.S. government will probably try and print money, or monetize the debt, to repay it. This will devalue the benefits received by the baby boomers and essentially significantly reduce the benefits that the Trust was supposed to fund. So the whole accelerated payments program will have become a sham and will have amounted to a regressive income tax on the working class.
Since personal consumption is nominally two thirds of the economy, if everyone was as frugal as the exemplary individual above (follow the link to read about the frugal individual), the GDP would shrink by nearly a third. Savings would be so abundant, and not inflationary because no one is spending, that interest rates and prices would collapse. And the frugal individual above would probably lose his job and his savings interest would plummet to nothing.”
And another quote from later in the article:
“An extreme scenario to be sure, but illustrates the unintended consequences of conservative Social Darwinism. Put another way, if people start being strictly responsible for their own retirement, it will cause as much or more pain to the economy as raising the FICA tax. Again, think of the rope. If you withdraw money from the consumer part of the economy in the form of personal savings, it will probably have considerably more negative impact on the economy than collecting and redirecting money back into the economy through raising the FICA tax. You can’t make the rope longer by cutting off one end and tying it to the other.
Besides, it is a pretty good deal. If a person making the median wage saved an amount equal to his yearly social security, $3,380, after 40 years at 3% interest he would have $142,000. If he then started withdrawing money in equal payments spread over his remaining lifetime, say 30 years, he could withdraw about $355 a month. By contrast the benefit accrued from paying the same amount in Social Security will entitle him to $937 a month. How do they do that? They do it by absorbing the risk of tens of millions of people. Most people won’t live 30 years after retirement, but no one person can behave as if he won’t. This is the largely unsung beauty of Social Security, it is a giant lottery that you win by living longer than anyone else. “
If you want to read the whole thing, follow this link:
To keep up to date with the Chained CPI movement you can visit the site of the National Committee to Preserve Social Security and Medicare at this link:
I love this next idea:
I don’t think that seniors are the only Americans who should be interested in Social Security. We all need to keep an eye on this program and what our fearless leaders have in mind for it and we need to weigh in when we don’t like what Congress or even the President is saying. If it looks like we will just coast along and do nothing that’s probably because that is the way everything is going right now. In the case that we are paralyzed into inaction we will just have to hope that the American economy begins to really flourish and that it does this really soon.
This is the view from the cheap seats.This blog post is also available at www.brissioni.com