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8 ways to fix Social Security

By Jennie L. Phipps · Bankrate.com
Tuesday, May 13, 2014
Posted: 4 pm ET

retirement-blog-stress-test-timothy-f-geithnerFormer Treasury Secretary Tim Geithner's new book, "Stress Test: Reflections on Financial Crises," went on sale Monday. Some of the hype centered on an excerpt in which Geithner wrote that the Obama administration had urged him to downplay the effect of the Social Security shortfall on the federal deficit.

Geithner described a session in which he was being prepped for an appearance on a Sunday political talk show during which White House communications director Dan Pfeiffer asked him to say that Social Security didn't contribute to the deficit. Geithner wrote that he objected to that phrasing because Social Security "wasn't a main driver of our future deficits, but it did contribute."

Fox News and other conservative media have jumped on this anecdote, saying that it means that the White House wanted Geithner to lie. Whether you interpret what Geithner wrote that way or you see it as a political way to say the White House doesn't support cuts to Social Security, it still re-emphasizes the need to find ways to shore up this essential retirement program.

Here are eight of the most frequently made suggestions for increasing what Social Security takes in and reducing the amount it pays out, according to AARP:

  1. Raise the full retirement age. Beginning in 2023, increase the claiming age by two months a year until it reaches age 70 in 2040. This could eliminate 44 percent of the funding gap.
  2. Recalculate the cost-of-living adjustment. Adopting the controversial chained COLA would reduce benefits by an estimated 8.5 percent after 30 years and eliminate 23 percent of the gap.
  3. Raise the payroll tax cap. Earnings greater than $117,000 in 2014 aren't taxed by Social Security, so only about 84 percent of all payroll is taxed. If the cap were raised to cover 90 percent of earnings, which was the case in 1977, then this would eliminate an estimated 36 percent of the funding gap.
  4. Eliminate the payroll tax cap. Eliminating the payroll tax cap altogether would eradicate the funding gap, but it would entitle high earners to outsized benefits, changing the nature of the program.
  5. Reduce benefits for higher earners. Enacting a sliding scale that reduced benefits for the highest-earning 50 percent of workers could eliminate 31 percent of the funding gap, but it would also affect middle-income workers who really aren't wealthy.
  6. Increase the payroll tax rate. Raising the payroll tax gradually over 20 years on both workers and employers from 6.2 percent to 7.2 percent would potentially eliminate 64 percent of the funding gap.
  7. Cover all newly hired state and local government workers. Requiring all newly hired state and local workers and their employers to pay into Social Security would fill about 8 percent of the funding gap. Currently, about 25 percent of government workers don't have Social Security coverage.
  8. Increase number of years used to calculate initial benefits. Raising the number of years used to calculate benefits from 35 to 38 years would eliminate about 13 percent of the gap.

What combination would you choose and which would affect your retirement planning the least?

In the meantime, here are seven little-known Social Security benefits.

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12 Comments
Bill
June 09, 2014 at 6:55 pm

Read what John wrote. Since our out of control congress empowered themselves to raid the monies paid into Social Security, it has been going downhill. They now act like they are giving us something when allow us to draw a pension check.

D.B.
June 09, 2014 at 5:26 pm

If we are going to have a social security system, every working person pay into it, that includes government workers, railroad workers, who ever works, and where they work, do away with the government retirement, and no more SSI

Doris
June 09, 2014 at 5:24 pm

(1) Remove the wage cap of $170,000 and cap the benefits at different income levels so millionaires and billionaires don't get rich on it OR make all proceeds payable to charity and make it a tax credit?

(2) Keep social security as is and since I am drawing social security and my friends are drawing it, I know it is not enough to live decently on. My husband and I have small pensions and savings so we are fortunate, but still not enough to feel comfortable. I have a friend who worked all her life, took care of 3 children alone and just lives on social security disability and just got a bill for $103,000 from the hospital and surgery bills Of course, she can't pay for it, but she feels terrible she can't and the bills still come to her address! Someone is paying the US government and/or us by high medical jacked up costs. How about adding one payer health care to the mix and take care of those sent into poverty by our current system.

(3) Do institute a payroll savings system similar to the "thrift savings plan or IRA" where someone could put a little extra away, but it a choice of 1% or higher so there is a nest egg at retirement. DO NOT GET RID OF SOCIAL SECURITY. Using a thrift savings option could turn into a nightmare when people gamble with their savings and invest in the stock market.

Tom
June 09, 2014 at 1:47 pm

No early retirement. Add federal employees and congress to #7. Start #1 now. Start Medicare at retirement not at age 65.

Common Sense
June 09, 2014 at 11:50 am

How about keeping the promises of Social Security? Does anyone want to try that? Rather than raising the retirement age, or the the tax rate, or the tax base, or cutting benefits for ANYBODY, all we have to do is to let the youngest workers put ALL of their taxes into a private account (government approved, if you insist), and then phase that in so that those currently near retirement continue to pay in full and receive full benefits. When the youngest retire, they will be eligible for NO SS benefits, but will have a huge "IRA"-- much larger than SS benefits-- to tap into. In the meantime, all of those special bonds (aka IOUs) in the trust fund get redeemed, by law, (from the general revenues) and are used to pay benefits. After that benefits come straight from general revenues. The "trust fund" is meaningless. And with private accounts, the economy will grow faster, and if you die at age 64, your family gets the money, not the government.

john
June 09, 2014 at 11:32 am

To fix Social Security make the government pay back all the money it has stolen from the Social Security TRUST Fund over t5he years. It is that simple. Make them pay it all back and do not let the money be used for anything but paying Social Security claims. Also make the Social Security Administration cap the salaries and bonuses of all executive officers at no more than $250,000 a year.

Tax d Rich
June 09, 2014 at 3:12 am

We should eliminate the payroll tax cap, give no benefits for the highest earners, and require all government workers to pay into Social Security. We all help make the rich to become rich. We all work for them, we buy from them and we get little from them.

shawn
May 18, 2014 at 11:47 am

I used to think that removing the cap was a good idea - it may still be but I am no longer convinced. While the tax may be regressive - the benefits accrued are progressive (that is they accrue to low income individuals at a higher rate than high income folks). So it seems reasonably balanced.

There is plenty of taxation. Raising rates should not be considered. Increasing the base merely delays the problem - not solving it.

How about means testing any benefit being paid to a beneficiary that was not the actual record holder? These folks (spouses, ex-spouse, survivors, children, adult parents etc.) are "entitled" by virtue of their relation to the worker. Given that they did not contribute any and all payments made to these individuals are in fact welfare payments. These could be means tested (or at a minimum 100% taxed). There could be no complaints about how it is my money etc.

Joe The Economist
May 14, 2014 at 5:23 am

What isn't clear here is that AARP's solution do not fix Social Security. When it says funding gap, it is the cost to kick the can.

In English, the funding gap is the cost to make the Boomer's problem a problem for Millennials. In AARPspeak, that means fixed.

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