The Social Security Trust Fund can be financially sound for the foreseeable future by implementing some minor changes to how the program is administered.
The primary issue with the trust fund is that it has been used to cover budget shortfalls and fund other programs. The Government borrowed from the Social Security fund by issuing IOUs in the form of special non-negotiable bonds. . In theory the interest on the bonds is credited back to the fund. As long as the IOUs are paid back, benefits will keep flowing. However, this will be short lived if we do not take action now. Experts say, and I agree, that the program's finances are deteriorating. The longer we wait to reform the system, the less solvent it will become. Congress must take action within the next four years to prevent a full draining of the fund by 2037.
The most obvious option Congress can take, and the one I do not support, is calling for decreasing the money the fund pays to retirees and increasing the money the fund collects through payroll taxes by raising the FICA tax.
The fund can also be shored up almost immediately by changing the eligibility age. Life expectancy for someone who was able to live past childhood in 1935 was 65 years old. That means, just as many people would be expected to die before they began receiving benefits, as would live to receive payments. Even those that lived past 65 were not statistically likely to live much beyond 65. Today life expectancy is over 78 years. Social Security is tied to the cost of living so benefits increase with inflation. However, the eligibility age has not changed since it was increased to 67 for those born in 1960. It is estimated that the program can save on average $3.5 billion per year when the full retirement eligibility age is increased to 68 regardless of birth year and the early retirement age is increased to 64.
Another proposal on the table calls for a lock down of the fund, crediting interest back to the fund and preventing future borrowing from the fund, through the issuing of IOUs, to fund other programs, balance the budget or reduce the deficit.
A proposal I don't support is the total privatization of a of the Social Security Trust Fund. This idea frightens many people, but others believe it will greatly increase return on the money in the Fund. I believe this option may be nothing more than a win-win for the Financial Service industry and a crap shoot for the everyone else invested in the fund. Another downturn in the economy would reduce the fund or even wipe it out entirely. Ask those who had 401K funds invested in stocks, mutual funds, etc. Many of them, close to retirement age, will never recoup their .losses and many will be putting off retirement to well beyond 67 years of age. How much risk you are willing to take will determine your support for this plan. Right now, I'm not willing to gamble with an entire generation's social security benefits..
So what can we do immediately?
- Shift to a consumer driven system for those under age 50.
- Lock down the fund and stop the issuance of IOUs to supplement other programs.
- Eliminate the ability of workers to receive benefits prior to retirement age, except under extreme circumstances.
- Bind increases in benefits to consumer prices rather than wage increases.
- Increase the early retirement age to 64 and retirement age to 68.
- Increase FICA base salary.
- Base benefits on means testing.
None of the above polices will require significant modifications to how Social Security is administrated.
The CBO estimates the Social Security Trust Fund would remain solvent through 2080 when the full retirement age is increased to 68. With age adjustments alone we could practically eliminate Social Security's projected deficit. Keep in mind, that the CBO estimate does not take into account changing the way indexed benefits are calculated, or any of the other immediate actions referenced above.
Security of Trust Fund depends on effective and responsible leadership. Implement each of the above policy changes and we will be on the path to securing the Trust Fund for this generation, the next generation and future generations.
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1. Social Security Bulletin 63(4):17–23