Retirement Blog

Finance Blogs » Retirement » Shrink Social Security to fix it?

Shrink Social Security to fix it?

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

One way to fix Social Security's deficits over the long haul is to shrink Social Security and provide smaller benefits for higher earners.

A team of economists at Texas A&M examined a 2013 report from the Office of the Chief Actuary at the Social Security Administration and concluded that shrinking the entire Social Security program has the potential to significantly reduce what all earners have to pay in Social Security taxes while preserving higher benefits for low-earning workers who need Social Security the most.

They argue that what higher earners save in taxes actually could fuel their retirement planning and in the long run improve their financial situation in retirement. Plus, because lower earners would get a relatively large Social Security payment, higher earners would have to pay less to fund welfare programs that provide food, housing and medical assistance. And because lower taxes would mean more money to spend, the economy would grow and that could actually increase the amount of wage taxes paid, as well as the number of people paying them.

Thomas Savings, distinguished professor of economics at Texas A&M, and one of the authors of the analysis, says a shrunken program would result in "higher income people who are no worse off -- tax reductions offset benefit reductions -- (and) lower earners who haven't lost anything. And you can have a reform that permanently fixes Social Security. I think that is important."

The analysis points out that a number of reform proposals made by both Democrats and Republicans are similar. The one on which they are basing their analysis was actually mentioned in the 2013 Social Security Trustees Report. It suggests that beginning with workers born later than 1957, the system create two new "bend points," starting at the 40th percentile of Social Security earnings. All workers with earnings above this point would receive lower benefits. This would affect the top 60 percent of earners. It doesn't affect low-income workers at all. The reform proposal also delays eligibility for full retirement age income by an additional two months every two years. This would affect workers born in 1961 and later.

Over a 75-year period, the reformed program's expenditures would be 25 percent smaller than they would be if Social Security were unchanged, the economists estimate. No one currently receiving Social Security or old enough to currently receive it would be affected. The benefit to younger workers is that they would pay less to support older workers and over time, the program's deficit would disappear.

Savings says that he teaches a class in public policy at Texas A&M where he explains this analysis to students, who often reject it, concluding that they will get lower benefits and that's bad. He tells them that they have it all wrong. If the program doesn't shrink over the next 45 years, he says, "You'll be living in smaller houses, driving cheaper cars and eating out less often than your parents because you have to support all the old people. This fixes that."

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
58 Comments
Dave in Illinois
February 09, 2014 at 1:14 am

There are a lot of economists that should have their degrees revoked! Period!

bob
February 07, 2014 at 8:39 am

really ? how about we just take the cap off for maximum taxable earnings and reduce the rate at which it is taxed . Then if we can get congress from borrowing from it ,the program could become solvent..We owe more money to ourselves than anyone one else....its all smoke and mirrors

Roger Pigue
February 06, 2014 at 7:52 pm

You want to fix Social Security? Stop sending billions to other countries in "foreign aid" and put the money to good use in THIS country!

mike
February 06, 2014 at 6:42 pm

No SS for rich people. They have already benefited from the system, SS is the price they pay for being rich in a free country.

Sue
February 06, 2014 at 6:33 pm

Why is it that Social Security Benefits (which people have worked all their lives to earn) are always threatened but NEVER is Welfare Benefits threatened? Social Security Benefits are NOT an entitlement as some will say in DC....Employers have contributed along with the employees into Social Security Fund always.....

ray matesevac
February 06, 2014 at 6:27 pm

lets stop giving welfare of all kinds to illegals and giving ss to legal immigrants who never worked. also lets trim the politicians salaries and require them to pay into ss and stop all this double dipping.

John
February 06, 2014 at 6:19 pm

All our financial issues in the US could be fixed easily if we removed the ability for special interest money to influence congress-i.e. public campaign financing. We also should require public votes on the benefits congress receives-i.e. pay for performance.

Dave
February 06, 2014 at 6:18 pm

All the analyst and Government Financial wizards continue to move the age of full retirement out even further. They need to wise up and see what is currently happening today in the work force. With the recession, Un-employment, and job availability affecting so many Baby Boomers entering Retirement now. Not to consider those millions of workers who are in the 50's and 60's with limited prospects of reversing their "Laid Off status. Many will be taking Social Security Benefits early when they hit 62. The American dream of working and retiring when you hit 70 is a little outdated.

buddy
February 06, 2014 at 6:17 pm

the government has borrowed between 60 and 80 trillion dollars since world war 2.If they would just stop taking the money from social security and medicare, and repay what they borrowed we would be just fine. from what I see if you borrow with no intension of repayment,would this not be a fraud.

Glen Pierce
February 06, 2014 at 6:14 pm

I predict that when today's elderly die over the next 4 years, and they represent a larger amount of people than the new one's coming into the plan, that the less SS checks will not be used to adjust the SS plan but instead will be robbed by the senators for other purposes. Fund Acctg allows the govt to shift monies around instead of using more solid Private acctg practices like squirreling the money away for a designated project. Our senators are nothing more than lawyers and not accounting types.

Add a comment

(Comments may take 5-10 minutes to appear)