I'm sure most people are familiar with all the discussion of social security and what will happen when the funding runs outs as well as what that means for future generations. Well I'm going to explore that as well as how social security works for all of you.
Social Security was brought about as a way to fund and support those that cannot any longer support themselves or those that have paid into the program for years and reached a retirement age where they can begin withdrawing it. Currently, the existing funds in social security appear as if they will run out in 2034. This means that the sum of money in the social security trust fund will be gone at that time. However, social security is not entirely dependent on that sum of money. Social Security receives huge sums of money every year as millions of Americans pay into the system. Studies that have been performed currently project that short term when the money in the trust runs out, benefits would be at a minimum of 79% of projected full benefits. Longer term, the projections show that Americans would receive benefits equal to roughly 66% of th projected full benefits.
This raises the question, what are these projected social security benefits? The projected benefits are not based on the current maximum benefits. They are instead based on the social security benefits after a cost of living adjustment is made. There is some good and some very bad with the cost of living adjustment. The good, depending on your age, is that the cost of living adjustment has not happened to every year. For the younger generation, this helps to extend the amount of time before the trust runs out. The bad is that the cost of living adjustment is well below the rate of inflation of the US economy. This means that the money that we millenials will eventually receive is not likely to go nearly as far.
I know when I began researching and reading more into the topic, I was shocked that there were such clear issues with the program, but very few politicians and people recruiting for changes or possible reform to the program. When you begin to think about why politicians seem to try away from the topic, it becomes somewhat obvious. Social Security is very divisive and those depending on it do not want to receive less benefits, while those that are currently paying into it do not want to pay more to receive less benefits anyway as down the road. This brings us to what could be done to:
a)ensure full benefits for the population beyond 2034.
b) increase the benefits that are provided in order to keep up with inflation, as the utility of the program decreases over time if it is not growing with inflation.
As mentioned earlier, there are some very divisive proposals such as:
- Increase the social security tax by roughly 3 percent
- Increase the age requirements to earn Social Security benefits
My thoughts would be to introduce some very different approaches to the issue, these are all independent solutions and would not be performed together:
- Raise the earnings cap to incorporate a larger percentage of higher income earners in a higher tax bracket.
- Add legislation to increase the required amount that businesses must pay into social security, have this be a tax deduction.
- Add a 1.15% tax on exports/imports and put this all towards social security.
- For those above a certain income threshold in retirement, do not apply the cost of living adjustment unless they happen to fall below that income point.
- Levy an increased tax on the health care industry that would feed directly into this program. This industry is leading to longer, healthier lives, which is great, however, it is also a cost that is directly incurred by this program and the people that pay into it.
In conclusion, Social Security is not going away, there will still be significant payback to those that pay into it. There are however definite and serious issues ahead of Social Security that need to be addressed and the sooner they are addressed, the less risk Americans will face and the easier the cost will be to offset, as there are years ahead right now to prepare for the upcoming trust depletion.