To fix Social Security yet protect benefits
In the May 15 issue of Barron’s, Burton Malkiel, an expert in investments, wrote an article that should be mandatory reading for all members of Congress.
Many readers of my column who are dependent on Social Security are concerned — and rightly so — that some Social Security benefits may be reduced in the future.
There is no question that the trust funds for Social Security have reserves to pay all scheduled benefits only until 2033. If Congress fails to take action in the next few years, Social Security benefits may be reduced for all Social Security beneficiaries.
There are many reasons for the likely deficiency in the trust funds. However, the main reason is that there will be fewer workers working under Social Security in the future than there will be retirees dependent on Social Security benefits. Another significant factor is the increased longevity of American workers.
It is easy for members of Congress to say there is no other solution to the deficiency in the trust fund other than to reduce benefits. There are solutions, however, which Malkiel listed in his Barron’s article.
Fix Congress first
I find it interesting that one thing members of Congress who are proposing reductions in Social Security benefits are not discussing is changing the favorable regulations that control their own retirement benefits.
For example, under current regulations, members of Congress are entitled to full pension at age 62 after only five years of federal service. The rest of U.S. workers have to work at least 10 years under Social Security in order to be eligible for retirement benefits.
Also, under current regulations, members of Congress can retire with a reduced government pension at ages 55-57 with 10 years of government service. The rest of us are not eligible for reduced Social Security benefits until age 62.
Potential solutions abound
One of Malkiel’s recommendations, which has been made by many others, is to increase the limits on wages that are subject to the Social Security payroll tax.
Currently, only the first $162,250 an individual earns is subject to the payroll tax. The regulation can be changed so that all wages are subject to this tax. According to Malkiel, 63% of the long-run funding gap could be closed by this change.
This change will not have a significant impact on the lifestyle of family units with incomes over $162,250. An across-the-board reduction in Social Security benefits, however, will have a dramatic effect on lower-income families that depend on Social Security.
Malkiel also recommended that the retirement age could be increased by one month a year until, in 24 years, it will have been increased by two years to “reflect in small part” the long-run increases in longevity.
Under this plan, there would be no change for current retirees, and only modest effects for those near retirement. For workers who perform manual labor, the age limits could remain unchanged.
Malkiel pointed out that, according to estimates from the Committee for a Responsible Federal Budget, raising the retirement age by two years (to age 69), and then indexing it to longevity, would close 39% of the 75-year funding shortfall.
Another option is to expand Social Security to include state and local government workers.
Bottom line: There are many solutions that a responsible Congress should be considering. In my opinion, there is no reason why some of the proposed solutions referred to in this article should not be addressed now, rather than waiting until 2031. [See also page 2 of the April Beacon.]
Most families in the U.S. that receive Social Security benefits depend on them to maintain basic living expenses. Retirees who have contributed to Social Security all their lives should not be penalized because there will be fewer workers working under Social Security and because of longer life expectancy.
Members of Congress have had many years to fix this problem. I urge every taxpayer to write to their Congressional representative and demand that they find a solution now to fix the trust fund problem without reducing Social Security benefits.
Any congressional representative who recommends taking away Social Security benefits without looking at reasonable solutions should lose his or her job.
Maybe the first thing they should be looking at is their own retirement benefits.
Elliot Raphaelson welcomes your questions and comments at email@example.com.
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