The International Monetary Fund on Thursday scolded the United States about its debt level and -- among other things -- recommended cutting Social Security.
That's easy for them to say since they don't have to run for office or deal with the reality that 26 percent of retirees depend solely on Social Security. The National Center for Policy Analysis also calculates that Social Security provides one-third of the retirement income of the highest-earning households -- couples with preretirement incomes of $500,000 and singles who earned at least $250,000.
If we abolished Social Security tomorrow, the NCPA calculates that in order to replace Social Security at retirement age, 35-year-old couples with annual incomes of $200,000 would have to reduce their current spending by almost 24 percent to save enough to replace Social Security at today's levels. Even with a diligent commitment to saving, when they reached retirement, they would have 39 percent less discretionary income than Social Security recipients have under the current system.
That sounds like retirement planning gone haywire to me.
For some better options to reform Social Security, take a look at the American Academy of Actuaries' "The Social Security Game" where you can try your hand at coming up with alternatives. Personally, I'm in favor of pushing the retirement age a little higher and making everybody pay Social Security taxes on every dollar they earn, instead of capping payments. This year's cap is $106,800, which means a lot of high earners skate. But if you think my ideas are bad ones, the actuaries offer lots of other alternatives that work and preserve this important retirement plan.
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Financial journalist Jennie L. Phipps writes about retirement planning from the viewpoint of a baby boomer who has lived her whole life in a crowd, and who is now getting old along with everybody else.