The 80th anniversary of the Social Security (S.S.) Act is coming up on Friday, but many millennials today don’t expect the government’s retirement insurance money to be there in 30 years. While the program is indeed on track to become insolvent by 2035, AP highlighted some solutions to keep the S.S. benefits afloat through 2090.
The Social Security Administration calculates the program’s finances 75 years in advance to ensure every employee paying into the system can plan their retirement accordingly.
Here are some facts about the current state of the federal program, followed by some proposed changes to keep the system self-sufficient:
- Current average S.S. payment is $1,221 per month ($14,700 annually).
- In 1960, 5 workers paid in to the S.S. program for every one recipient of benefits. Today, there are less than three payers for every one recipient. By 2035, there will be around two payers for every one payee.
- In 2015, 60 million people including retirees, disabled workers, and benefactors (relatives of deceased S.S. eligible), receive S.S. payments.
- S.S. trust funds are worth a combined $2.8 trillion, enough money to pay all eligible for benefits in full for next 20 years.
- S.S. Disability program is set to become insolvent relative to current benefits in 2016, when it will start implementing an automatic 19% in payment cuts (President Obama and Congressional Democrats have proposed transferring S.S. tax payments to disability fund, which would makes both programs solvent until 2034 – after that, deficit gap would grow to $571 billion in the first year, and $7 trillion within a decade).
Proposed changes to save program’s solvency:
- Tax ALL payroll income (only first $118,500 is taxed now) – closes 66% of shortfall gap; increase payroll tax by .1% per year for next 20 years (currently 12.4%) – 49% of shortfall
- Increase retirement age to 68 by 2033 (current eligibility age for full benefits is 66) – 15% savings; raise early retirement age to 64 in 2023, full retirement to 69 by 2027 – 29% savings.
- Reform inflation index used to determine yearly benefit increases to Chained CPI, which adjusts assumed individual spending downward when inflation rises (benefits increased by 1.7% in 2015) – 19% in budget savings.
While austerity measures are necessary to save the program from itself, 72 Congressional Democrats signed a letter addressed to the President in July calling for an increase in “Social Security benefits for millions of Americans”, through small changes that would enable granting larger payments.
Congressional Republicans, on the other hand, have only officially endorsed creating a “bipartisan commission” to study and propose changes for the program. Besides taking a wait-and-see approach, the only other stance GOP lawmakers have taken recently is to oppose transferring funds from the primary S.S. fund to the Disability program.
Implementing only two or three of the fixes highlighted above would remedy the S.S. insolvency problem, but unfortunately it’s a non-starter in Washington these days. Cutting benefits or increasing taxes amounts to a political death wish that would put them at odds with high voter-turnout demographics.
Populist politicians, like Sen. Bernie Sanders who is running for the Democratic presidential nomination, are calling for increases in the cost-of-living adjustment (COLA), which would adjust benefits over the inflation index, not under, contradicting a possible solution to otherwise inevitable insolvency.
“In my view, given the fact that poverty among seniors is going up, that seniors are struggling, that people with disabilities are struggling, we have got to expand benefits, not cut them,” said Sanders.
However, Senate Finance Committee Chairman Orrin Hatch (R-UT) doesn’t see how an increase in S.S. payments is possible, given the economic realities.
“Where are they going to get the money?,” asked Hatch. “They don’t ever seem to give any consideration to how deeply in debt our country is and how difficult it’s going to be to get out of it.”
Indeed, small changes now will do mountains of good down the line when millennials are ready to retire. The question is, does anyone inside the Beltway have the political will to defy seniors (the largest voting demographic in America) and the anti-tax lobby?
If not, Social Security won’t see its 100th birthday.
[AP] [Fiscal Times] [Forbes] [photo credit: U.S. News & World Report]