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Bipolar fixes for Social Security

By Barbara Whelehan · Bankrate.com
Friday, January 18, 2013
Posted: 2 pm ET

This week, the Business Roundtable, a group of 210 CEOs of major U.S. companies, released its recommendations for Social Security and Medicare reforms.

What business do they have messing with entitlement programs? Well, the Business Roundtable's stated purpose is to involve itself in public policy and help solve our national problems. It recently offered solutions to the "fiscal cliff" crisis.

But its solutions for these programs are, well, controversial at best, self-serving at worst.

People age 55 and older would be grandfathered into the current system, but younger people would be impacted by its proposals if they are implemented. Here are its recommendations for the Social Security system.

  • Increase the full retirement age from 67 to 70. Accommodations would be made for people in physically demanding jobs.
  • Change the way the benefits are calculated by increasing means testing and progressivity. Translation: Lower paid workers would get a proportionately higher benefit than higher paid workers. This is how it's structured today, but progressivity would be greater.
  • Use the chained consumer price index instead of the standard CPI for cost-of-living increases.
  • Enroll newly hired state and local workers into the Social Security system.
  • Strengthen incentives for private savings and workplace retirement plans.

Wait until 70?

I admire efforts to fix the long-term fiscal solvency of the Social Security system, and I like some of the Business Roundtable's proposals. But the idea of raising the retirement age to 70 would be a retirement planning disaster for most people.

And the widespread myth that this solution would lift the burdens of younger generations is completely off-base, according to an analysis by the National Academy of Social Insurance, which shows that our children and grandchildren would get shortchanged in benefits.

Another organization has made no secret of its opposition to raising the retirement age.

"I think that, unfortunately, the Business Roundtable is positioning themselves to undermine the economic security of the 99 percent of Americans who don't have the incomes and wealth that Business Roundtable members have," says Dr. Maya Rockeymoore, president and CEO of Global Policy Solutions, a policy firm based in Washington, D.C. "The cumulative effect of increasing the retirement age and using the chained CPI would more than offset any benefits you get from the other proposals."

Rockeymoore says the proposals have race, class and gender implications. "Increasing the retirement age shifts Social Security wealth away from those who have shorter life expectancies to those who live longer lives. And those folks are disproportionately whiter and wealthier," she says.

She calls the chained CPI "a form of fiscal sexism" because using that index results in lower cost-of-living adjustments, which over time causes a steep cut in benefits that impacts women disproportionately. She questions the Business Roundtable's agenda and says its members "should be ashamed of themselves."

Rockeymoore has a different agenda: Boost benefits for the very poor, the very old and for caregivers who take time out of the labor market to care for children or loved ones. As former co-chair of the Commission to Modernize Social Security, Rockeymoore helped put together a different set of proposals that eliminates the cap on wages subject to Social Security and "flattens the benefits for higher earners."

Currently, workers contribute 6.2 percent of their wages to the Social Security program for wages up to $113,700 -- any earnings higher than that escape Social Security taxation. "By lifting the cap, you can actually close about 75 percent of the long-term solvency gap under Social Security," she says.

In addition, her proposed plan would include a 1 percent payroll tax hike implemented gradually over a 20-year period, the effect of which feels like "less than the cost of a pack of gum a week for the average person."

But she agrees with the Business Roundtable's proposals to increase progressivity of benefits and to include newly hired state and local workers into the system. "We know that local and state pension plans are experiencing challenges," she says.

Both her proposals and those of the Business Roundtable have the same goal -- to strengthen and modernize the Social Security system -- but each goes about it in a totally different way.

Which set of proposals to fix Social Security do you like better?

***

Follow me on Twitter: @BWhelehan.

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5 Comments
John Dolfi
February 20, 2013 at 1:05 pm

A) IMPOSE A SURTAX ON ALL IMPORTS IN ADDITION TO THE DUTY
NOW IMPOSED.

B) THE JUSTIFICATION FOR THIS NEW TAX IS --TO RECOVER THE PAYMENTS TO SOCIAL SECURITY THAT WERE LOST BECAUSE THE LABOR TO PRODUCE THE IMPORTS WAS ALSO LOST -- LABOR WAGES ARE THE BASIS FOR FUNDING OUR SOCIAL SECURITY PROGRAM

C) DEDICATE THE TAX COLLECTED TO BE PAID DIRECTLY INTO THE SOCIAL SECURITY FUND.

D) THE TAX AMOUNT WOULD BE BASED ON THE AMOUNT REQUIRED TO BALANCE THE SOCIAL SECURITY PROGRAM ACCOUNT--- BASED ON THE VALUE OF THE IMPORTS; THE TAX RATE WOULD BE VERY MINIMAL

E) OTHER NATION REPRISALS WOULD NOT BE A SIGNIFICANT CONCERN BECAUSE; WE IMPORT MORE THAN WE EXPORT, AND THEY ONLY IMPORT WHAT THEY ARE UNABLE TO PRODUCE.

F) THE RESULTS OF THIS TAX WOULD BE TWO FOLD:

1) IT WOULD SOLVE THE FINANCIAL PROBLEMS OF SOCIAL SECURITY, AND

2) IT WOULD DO IT WITH REAL NEW MONEY -- NOT JUST MOVING THE MONEY NOW IN CIRCULATION IN OUR ECONOMY FROM ONE ACCOUNT TO ANOTHER ACCOUNT.

Michelle D
January 28, 2013 at 9:52 pm

Social security should raise the minimum quarters instead of age. Why should someone who paid in for ten years over 55 be fully vested, while a person 50 with with thirty years paid in be SOL??????????

Barbara Whelehan
January 28, 2013 at 3:15 pm

Hi Phyllis -- You can collect Social Security on the basis of your own earnings or half your husband's, whichever is greater. Under most circumstances you have to wait until age 62 before you can claim benefits, though there are exceptions for widows and disabled people. The advice in Dr. Don Taylor's column, "Wife can nab bigger Social Security cut," is the closest match I could find to your situation. But be sure to thoroughly examine all your options before you apply for benefits. Here's that column, and good luck: http://www.bankrate.com/finance/retirement/wife-nabs-bigger-social-security-cut-at-66.aspx

Phyllis
January 25, 2013 at 7:59 pm

Have a question on Social Security? I am 60 years old, I really did'nt work alot in my years and don't have enough hours etc.Still not working for 8 years now.Someone told me that I can collect 50% of my husband S.S. and he will stillbe able to collect his whole S.S. when he is ready.Do i have to wait till i am 62 or do i have to wait to apply when he starts collecting? Is this true? Knows someone that is? I live in the state of Va. I am married for 42 years and my husband is still alive... Anyinformation or advice will be helpful. Thankyou