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How to fix Social Security

By Jennie L. Phipps · Bankrate.com
Monday, February 7, 2011
Posted: 4 pm ET

Here's a little retirement planning exercise. See if you agree.

If you ruled the world and you could fix Social Security, how would you do it?

The University of Maryland Program for Public Consultation asked that question of about 2,000 people and found that given a series of possibilities and the percentage of the problem each would fix, 75 percent were willing to make choices that eliminated the shortfall.

About 60 percent of respondents were able to make enough changes to Social Security to put it on solid footing and at the same time, raise benefits to low-income retirees.

Here are the choices that people made:

  • Raising payroll tax limit to $156,000 solves 25 percent of the problem and 83 percent found it tolerable.
  • Completely eliminating the payroll tax limit solves 75 percent of the problem and 78 percent found it tolerable.
  • Calculating starting benefits based on the inflation rate of prices not wages solves 25 percent of the problem and 79 percent found this tolerable.
  • Adjusting cost of living increases to buying patterns most relevant to older Americans solves 25 percent of the problem and 75 percent found it tolerable.
  • Raising the retirement age to 68 by 2034 solves 13 percent of the problem and 65 percent found it tolerable.
  • Raising the retirement age to 70 by 2048 solves 38 percent and 41 percent found it tolerable.
  • Increasing the Social Security tax 1 percent over 20 years solves 75 percent of the problem and 85 percent found it tolerable.
  • Reducing benefits by 25 percent overall solves 50 percent of the problem and 19 percent found it tolerable.

If we can agree to this extent on making these hard choices, why can't our elected representatives do the same thing?

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26 Comments
Tracie Culver
February 17, 2011 at 4:36 pm

Fixing Social Security is easy. Everyone must pay FICA out of their earned income with no cap. We are all used to that amount comming out of our checks so we wouldn't even miss it if when the cap is reached, we just continue to pay. Changing the age is sneeky and it happened to me (I was born in 1961) but it does make sense since Americans are living longer and therefore stressing the healthcare system. Make the retirement age 68, nothing early and leave it there. Social Security was NOT designed to be a persons sole source of income so remember that as the years go by and save at least 20% of your gross income every week. Believe me it adds up. Diversify your investments and for Gods sake if you don't understand about investing, pay someone reputable and get help. You'll spend $100 out to dinner, cough up a couple of hundred to make sure you're golden years are just that and stop whinning!

Marketfog
February 10, 2011 at 11:43 am

How to fix SS. A certain portion of SS benefits are taxable for IRS purposes. My solution: Take the ratio of taxable SS benefits relative to total taxable income, multiply total taxes paid by that ratio, then return that portion of taxes to the SS Trust fund. Since the taxes are on Designated SS benefits, it only fair that they should be returned to the SS Trust. This would probably maintain the integrity of the SS Trust fund indefinitly or until the politicians decide to raid it again.

Kathryn
February 09, 2011 at 11:54 am

Of the options listed, I agree with these two:

* Raising payroll tax limit to $156,000 (25%)
* Increasing the Social Security tax 1% over 20 years (75%)

I do not agree with increasing the payroll tax limit beyond that, because SS is already something of a welfare program, and the more welfare-ish it becomes, the less support it will receive from the wealthier Americans who are so vital to its existence.

I also do not agree with playing games with the increase formulas that so many rely upon to ward off inflation; this is just trying to disguise cuts as "recalculations," and it's dishonest.

I am not in favor of cutting benefits or raising the retirement age. Although many can work longer than 65, some cannot, and trusting the government to decide who fits into which bucket is just begging for trouble and fraud.

That said, I do not feel any obligation to fund retirement in any way for those who failed to plan, apart from participating in SS. My generation (Xers, 30-40 year olds) are already faced both with paying higher taxes and with getting fewer benefits in return for our money. And we must pay those higher taxes while trying to save adequately for our own retirement at the same time -- this is a very bad deal for us. And this is before we even discuss the problems with Medicare, which will certainly also require higher taxes... on us!

If this country should fall further into a hole than is currently expected, I think benefit cuts will have to be revisited. A single, relatively small group of people cannot be made solely responsible for bearing the brunt of this financial disaster. (Especially when they did not create it.)

George J. Finn
February 08, 2011 at 8:56 pm

Require the government to pay back all borrowed funds , over a period of time. Most important of all make it a dedicated fund and put the funds into the account not just target them. Tighten up on the disability claims.

dale coberly
February 08, 2011 at 3:59 pm

shantique

your arithmetic is wrong. raising the tax 1% would raise the tax from 12.4% (combined) to 13.4%

and this is what it would cost you to save for your own minimum retirement. the difference is that with SS the benefits are guaranteed. your own savings are subject to inflation and market losses and your own bad luck.

the "rich" don't get benefits except what they pay for. raising the tax on them would turn SS into welfare,which it is not.

the trouble with most people's opinions about SS is they don't know anything except the lies they have heard, and they can't think too well about those.

Annoyed

people may live longer but that doesn't mean they will be able to work longer. in any case people pay for their own Social Security, so when they have "saved" enough, why shouldn't they be allowed to retire if they want to. To save enough to retire at the present retirement age, even if they are going to live longer, would cost them an extra 40 cents per week per year.

i know you have strong opinions about this, but they are based on the lies you have been hearing from people who don't want you to be able to retire at all. They can be pretty sure you won't check their facts or their arithmetic.

AnnoyedinCO
February 08, 2011 at 2:36 pm

The problem with this system is that those who pay in the least get the most. People who make more also try to save for retirement in other ways - 401k, IRA, oversea accounts, etc. People who make less on the other hand depend on SS for their retirement.

I think that you should get back what you put in - if you put in more, you get back more.

Also, the age should be raised to 70 - we live longer after all, compared to when this program was stated.

Finally, I think the program should only cover costs such as medical, heating (and other utilities necessary to live), and basic food costs - instead it is used on vices, trips, and other unnecessary things just because someone else is now paying for them. Make it a basic - we'll keep you alive - program, not a - do what you want - program.

dale coberly
February 08, 2011 at 2:23 pm

or why not ask them about the CBO option number three: raise the payroll tax one half of one tenth of one percent per year over sixty years. This eliminates 85% of the "problem" at a cost no one would feel: one half of one tenth of one percent of an average workers pay today is forty cents per week. There is no problem.

Continuing the CBO option to seventy years would eliminate 100% of the problem, and fund SS "over the infinite horizon." There is no problem.

Employing a "trigger" that would raise the payroll tax one tenth of one percent for each the employer and the employee (that's eighty cents per week for each) whenever the Trustees project "short term actuarial insolvency" would eliminate 100% of the problem. There is no problem except the scare stories that the Big LIars have spent a billion dollars on to convince you that there is.

pappyg
February 08, 2011 at 11:00 am

Social Security has morphed into a cancer on middle class working Americans, and like any life threatening disease the first order of business is to diagnose the problem. Then based on the report develop a solution that allows middle class working Americans, their families, and the communities they call home to proper again. Not a reform but a solution.

Shantique
February 08, 2011 at 9:20 am

Increasing the payroll tax 1 percent over 20 years solves 45 percent of the problem and 85 percent found it tolerable.

So 85% of people found it tolerable that at the end of this we would be paying over 26% of our paychecks to SS??? That is ridiculous! I love grandma and everything, but it's not my fault she did not save enough of her earnings to take care of herself. Why does that become my job? Or my children's job?

The most FAIR way to do this would be option 2...eliminating the payrol tax limit. Why should the lower income earners be saddled alone with this responsbility. Why shouldn't Warren Buffett have to pay more than me...he makes 300 time what I make.

Let me be clear, I am not in favor of taxing the rich at higher rates. There should not be a limit to the income amount that can be taxed, but the percentage that is charged should not go up.

Then I think the retirement age should be raised to 70. People are living much longer, so they should contribute to society longer. If you want to retire earlier, then YOU should be responsible to fund those extra years.

Those two options together would fix social security, if it's something we HAVE to have.

Personally...I rather take my 6% and contribute to my 401K myself and have my employer match it.

bobcatr
February 08, 2011 at 9:12 am

put our congressmen and senators under social security and medicare with no other benefits.that will solve 100% of problem