It is interesting to note that the two largest entitlement programs in the history of the country, Social Security and Medicare, are the only two that are not currently running at a deficit.
The Social Security Trust Fund is, for the foreseeable future, financially sound and taking in slightly more in payroll taxes than it is paying out. To cover budget shortfalls the Government borrows from the Social Security fund by issuing IOUs in the form of special non-negotiable bonds. In theory at least, the interest on the bonds is credited back to the fund. As long as the IOUs last, 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 least favor, is calling for decreasing the money the fund pays to retirees and increasing the money the fund collects through payroll taxes. The fund can also be shored up almost immediately by changing the eligibility age1. 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 the beginning of the program. 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 and the early retirement age is increased to 64. Another method would be to lock down the fund, credit interest back to the fund and prevent Congress from borrowing from the fund, by issuing IOUs, to fund other programs, balance the budget and decrease the deficit. A recommendation, I don't currently support, is the privatization of a portion of the Social Security Trust Fund. This idea frightens many people, but others believe it will greatly increase return on the money in the Trust 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 65 years of age. How much risk you, as a voter, are willing to take, will determine your support for this plan. Right now, I'm not willing to gamble with the retirement funds of an entire generation! So what can we do immediately? - 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
None of the above items require huge modifications to how Social Security is administrated. The CBO estimates the Social Security Trust Fund would remain intact through 2080, if the full-retirement age was increased to 68. Increase the full eligibility age to 69 and early eligibility age to 64 and you can extend the insolvency date well beyond 2080. If these age adjustments were made, you would 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 three immediate actions referenced above. Apply a portion of each recommendation, and we will have fixed Social Security! 1. Social Security Bulletin 63(4):17–23. ### |