OK, my fellow 65+ friends, gather round and let’s look at Social
Security for a minute or two.
This venerable program, designed to keep seniors from
poverty, has been working quite well for many years, thanks, in part, to
several tweaks along the way. But, it has been headed for a disastrous
collision with a large hard wall for some time now. As of 2015, the system
still took in more than it paid out, by about $23B. But, as more Baby Boomers
move onto the rolls, payments will start to exceed revenue. This year of 2016
will likely see the first of an escalating Social Security deficit. The
demographic and economic forecasts estimate that the reserve (now about $2.7
Trillion) will be exhausted in 2034, at which time benefits will have to be
reduced by about 25% across the board.
Unless Congress starts to apply the brakes before the
collision happens. And the sooner, the better.
There are many ways to avoid a crunch, but the simplest is
to raise the cap (now $118.5K) on Social Security withholding. To simply lift
the cap and withhold on all earned income would generate about $100B additional
revenue. This would instantly MORE than erase any deficit and would allow for
about a 50-60% increase in benefits. Other options are to lift the cap to $200K
or keep the cap where it is and apply the withholding tax on income over $250K
(Bernie Sanders plan). Either one yields an extra $50B revenue, which doesn’t
stop the deficit, but slows the depletion enough to get us past the “Boomer
Hump” and make Social Security solvent in perpetuity and even allow a modest
10-15% benefit increase.
Of course, the wealthy are opposed to any of this and the
GOP (and surprisingly Obama) have put forth ways to “close the gap” by cutting
benefits instead. None of these plans would generate enough income to avoid the
crunch, just postpone it a few years. And they would put an onerous burden on
the millions of seniors who rely on that monthly benefit.
So, please contact your representatives in Congress and
let them know that this is a problem that needs to be fixed. And fixed soon.
You might even suggest, from the list above, how you’d like this done. In case
they haven’t done their homework.
One more thing : Just ignore all those ridiculous internet
memes about how the Fund has been “stolen”. The Fund is invested in Priority
Treasury Bills, now paying about 3.4% interest. Perhaps the safest investment
on the planet.
In addition to lifting or modifying the SS withholding
cap, which is clearly the simplest and most effective way to solve the looming
SS “gap”, other plans have been proposed to make the SS system more financially
sound and avoid a benefits crisis in 2034.
One plan calls for a means test to receive benefits. The
concept seems fair enough – SS was meant to keep elders from poverty, not
provide pin-money to millionaires. So, those retirees with large incomes would
be denied SS benefits. The most common numbers that I have seen proposed would
start cutting benefits if income is over $100K/yr and eliminates SS benefits
totally if income exceeded $200K. These proposals usually also include a test
for assets, beginning at $1.5M and eliminating benefits if the retiree owns
more than $3M in assets. These figures roughly correspond to the amounts needed
to purchase an income annuity of the respective amounts. Estimates are that
this would save SS about $7B per year – a drop in the bucket compared to the
$50B to $100B of modifying the withholding cap.
There are two other problems with this plan. One is that
enforcement and administration of the means test would likely wipe out any
savings, if the costs were anything like the cost of disability administration.
Although clever estate lawyers and accountants would love the extra business
created.
The other is that the wealthy would likely cry foul, not
realizing that SS is an insurance plan, not an investment.
The other plan, put forth by the GOP and their banker
backers, is to give the SS recipient the option of converting their expected
benefits into a lump sum payment. Sort of like the JG Wentworth or PeachTree
offers. Aside from the fact that this would in NO WAY save SS any money, it
defeats the whole purpose of the SS program – to ensure that seniors are not
destitute, with no income source. Once the beneficiary has taken their lump
sum, the Wall Street vultures would descend, putting that sum at risk in the
market. You can just imagine the drooling that goes on when looking at $2.7
TRILLION in assets that they could make money off of !! Moreover, that lump sum would not be all that
large. The average lump sum would be around $160K and the maximum would be
about $400K. Sounds tempting, but the results could be individually
devastating. And the Banksters would LOVE it !!
No, better to just lift the cap, which would also allow
for a 50% to 60% increase in benefits, or go with Bernie Sanders’ more modest
plan, which would avoid a 2034 benefits crisis and maybe a 5-10% raise in
benefits.
The time to do this is NOW !! Urge your representatives in
Congress to either pass Bernie’s bill or lift the cap completely. Or maybe wait
until after the election.
For more detailed and really tiring language on the
subject, click the link below.
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