Social Security Smart

Can We Fix Social Security? Of Course We Can!

by Randall Luebke RMA, RFC on March 27, 2014

Stating that “Social Security is broke” is a false premise. It is simply not true. The fact is that Social Security is far from broke with nearly $3 trillion in Social Security reserves as of December 31, 2013. According to the Social Security Administration’s Office of the Chief Actuary the OASDI Trust Fund started with $2.732 trillion in reserves as of December 31, 2012. Then, mainly through payroll contributions and interest earnings $855 billion was added to the fund in 2013. With $823 billion in total expenditures the fund realized a NET INCREASE of $32 billion for the year.

Social Security is NOT broke, at least, not yet. The problem is, while Social Security has huge and growing reserves at the moment, this is all about to change. Why? Because baby-boomers who created these reserves during their working careers are beginning to retire. As more and more of these boomers transition from contributing to Social Security into receiving benefits from Social Security this new equation changes these results rapidly. As a result it is estimated that by 2033 the $3 trillion surplus will be used up completely.

This tipping point has already occurred and unlike global warming these findings are relatively simple to calculate and they are difficult to dispute. The cross-over occurred somewhere around 2008. At that time the amount of money going out from Social Security exceeded the money going into Social Security through payroll contributions. As this trend continues, and it will, a time will come where the income from Social Security will be insufficient to pay out all of the benefits promised. Essentially, the baby boomers have funded the benefits for the so called “Greatest Generation”, however, our children and grandchildren are unable to fund ours. Moreover, who will fund theirs?

We can fix this situation. In fact, the solutions to resolve this circumstance are relatively painless, not all that complex and they could fix the problems with Social Security into perpetuity. Here they are:

– Increase the Maximum Earnings Subject To Social Security Taxes

– Raise the Normal Retirement Age

– Make These Changes Now

Increasing the Maximum Earnings Limits – Currently, in 2014, once you earn more than $117,000 you stop making contributions to Social Security. This amount has increased over the years. From 1937 all the way though 1950, once you made over $3,000 a year you stopped contributing to Social Security. Now, $3,000 in 1937 is about the same as $48,000 today due to inflation. However, there is a huge difference between $48,000 today and the $117,000 maximum income subject to Social Security. Obviously, Congress has played this game before. I fact, Congress raised these earning limits in 1951, 1955, 1959, 1966, 1968, 1972, 1975, and EVERY YEAR since 1979. That said, raising these limits will not effect the majority of working Americans because the majority of Americans do not earn more than these limits today. Therefore, for those who need and will benefit from Social Security benefits the most, the working middle-class, there is no real effect on their household incomes today. Yet, eliminating the earning limit would help to contribute to the income gap that Social Security faces.

Raising the Normal Retirement Age – Today, that age is 66 for those born between 1943 and 1954. If you were born after 1960 your normal retirement age is 67 years old. Why the 6 year gap? The gap was a previous attempt by Congress to sustain Social Security. If you were born in 1955, for example, your normal retirement age is 66 and 2 months. Two Months! That’s it! The point is that by making small adjustments to the normal retirement age for those retiring decades from now that we could change for formula significantly and sufficiently to ensure that Social Security will never run out of money again. By the way, this does NOT mean that we need to continue to extend the normal retirement age into perpetuity as well. Meaning, we do not have to continue to add months so that someday our grandchildren can retire at 110 years old. What this process would do is allow enough time for the next biggest generation, the Millennials (Generation Y) to hit their prime earning years and their contributions into Social Security will supersede those of the baby boomers in total. When you combine the earnings potential of the Millennials with smart immigration reform and a strong and growing economy you have a formula for success.

Making These Changes Now – One thing for certain, the longer we wait to make any changes to help Social Security the more difficult and more painful the choices and decisions will become. This is simple arithmetic. Time is our friend when have it. That is, time to benefit from the changes we can and should make. Conversely, time becomes our enemy when we do not have it. Today, our friend. Tomorrow, our enemy. It really is that simple. The solutions to putting Social Security back on track out simple…today. Can we we fix Social Security? Of course we can.

There are other solutions and combinations of solutions that would solve this issue as well. We are told that Social Security is an “entitlement”. This is meant to be derogatory, meaning that Social Security benefits are something we don’t deserve. This is shameful because another fact is that every working American will potentially contribute hundreds of thousands of dollars into Social Security. Of course we are entitled to receive something in return for our work and our contributions. In my opinion we should expect, no demand, something in return as should our children and every generation to follow. Social Security is not broke, but the Social Security system is most certainly broken. So, let’s fix it!

It’s a Good Life!