Once a trustworthy financial promise for working Americans, the government’s Social Security system in on shaky ground, with a threat of insolvency looming by 2036.
Several bills have been introduced in Washington to either raise taxes on the wealthiest Americans or reduce benefits, or some combination of the two, to increase the longevity of the program. According to the Social Security Adminstration’s Web site, SSA.gov
, 10 plans have been introduced this year in either the U.S. House of Representatives or U.S. Senate to shore up the system’s trust fund.
With concerns over the nation’s debt limit in the spotlight recently, many politicians on Capitol Hill and others have said changes to entitlement programs such as Social Security are needed now. According to the SSA, the program’s expenditures exceeded its noninterest income in 2010 for the first time since 1983, and the deficit is projected to be $46 billion by the end of the year.
Sen. Claire McCaskill, D-Mo., held a town hall meeting Sept. 30 at the South Side Senior Center on South Fremont Avenue to address local concerns about the program.
McCaskill has co-sponsored a bill that would increase payroll taxes for workers who earn more than $106,800 per year – the current Social Security tax cap. McCaskill told roughly 60 seniors at the Springfield center that raising the limit would extend Social Security’s payments through 2086.
“If you make $4 million, only $106,000 is taxed for Social Security,” McCaskill noted, adding that she wants to ensure the safety net Social Security provides seniors remains in place for the foreseeable future.
She said fixing Social Security is part of a solution to the country’s long-term debt problem.
Cody Mendenhall, a certified financial planner and manager of the RetireAdvisers team at Pension Consultants Inc., said more clients are asking: Will Social Security be there for me? How long will I have to work?
“It’s the same old questions that have been asked forever, but now there is just a bit more nervousness behind their questions,” said Mendenhall.
He described Social Security as a pay-as-you-go system, and with the number of retirees increasing and people living longer, changes are required. One option gaining traction is increasing the age retirees can begin to receive benefits, he said.
“Since around the 1940s, the life expectancy for males has increased by about five years. For females, it’s increased about six years. But the retirement age has only increased two years,” he said. “There’s just too much money going out and not enough going in.”
According to the SSA, the full-retirement age was 65 for many years. However, beginning with people born in 1938 or later, that age is gradually increasing until it reaches 67 for people born after 1959. Those born in 1955 are eligible for full benefits at 66 years and 2 months.
Sen. Roy Blunt, R-Mo., also has expressed urgency in seeking a solution.
“Now is the time to save it,” Blunt said during a July 12 speech on the Senate floor in which proposed legislators alter the cost of living adjustments – currently tied to the consumer price index – to be tied to health care costs and utility bills for most seniors.
Because projected growth in the cost of health care and utility bills are less than the CPI, this would make the entitlement program solvent through at least 2081, he said.
Mark Rushefsky, professor of political science at Missouri State University, said he has closely followed the action in Washington, and feels much of the debate about the need for changes is overblown.
“With Social Security, there may be a problem with it in terms of long-term financial viability, but I think that’s overstated anyway. It has not contributed to a long-term deficit problem. If anything, it’s made it better,” he said.
Rushefsky noted the Social Security tax is the federal government’s second-largest funding source – at $900 billion this year – next to the individual income tax.
The system has been running surpluses since the 1980s, leading the government to borrow against it and causing politicians such as Republican presidential candidate Rick Perry to see the entitlement program as something of a Ponzi scheme, Rushefsky said. Without Social Security dollars, he said the $15 trillion federal deficit would be several hundred-million dollars larger. In eight to 10 years, Rushefsky said, those Social Security IOUs will come due, according to some projections, which is why some legislators are calling for changes now.
He said proposals for reducing benefits, increasing the retirement age or modifying the cost of living adjustments appear to be the most popular options. Rushefsky said raising the cap and increasing the payroll tax rate also are possible, though he doesn’t believe either will happen. Currently, employees pay 4.2 percent on payroll taxes, while employers pay 6.2 percent into Social Security.
Rushefsky dispels the idea that the system could go bankrupt. “There will always be money coming in,” he said.
In his advice to clients, Mendenhall commonly refers to retirement funding sources as part of a three-legged stool. A good plan utilizes Social Security benefits, an employer-sponsored retirement plan – such as a 401K – and personal savings.
“Unfortunately, people are relying too heavily on that first leg,” Mendenhall said.
He said a good rule of thumb is that a person’s Social Security income should only account for 36 percent to 40 percent of their annual income in retirement.
“Unfortunately, about one-third of retirees are relying on Social Security to provide 90 percent of their income,” he said. “And 60 percent of retirees are relying on it to provide more than half of their income.”[[In-content Ad]]