Jessica Jinkens: Social Security Reform - Government Improvement Series

Friday, June 19, 2009

Social Security Reform - Government Improvement Series

Being the largest government program in the world and eating up as much as 23 percent of the federal budget, the Social Security is a system that most Americans either love or hate. If you are receiving benefits and depend on the checks that come through regularly, you appreciate what this program does for you. If you are working and realized that you won’t see much of a benefit from this system in the future, not so much.

In the latest Social Security trustee report (here’s a summary), it is projected that Social Security will start running on a deficit by 2016. This means that in seven years, the program will need to start drawing on the surpluses of prior years.

This may sound like no problems to most of you, but note that the surpluses, held in what’s known as the Social Security Trust Fund, has no real assets. Therefore, the government will need to somehow manufacturer money to pay the fund back. Furthermore, even if the government is able to produce the dollars needed for the fund without hurting taxpayers, it is projected that the fund will be completely depleted by 2037 - not a good sign for the younger workforce hoping for benefits.

This suggestion is a no brainer - We need a Social Security Reform, pronto.

The latest Social Security report also suggested that we could prolong the inevitable another 75 years by increasing Social Security taxes by 16 percent (from 12.4 to 14.4 percent currently) or through a reduction of 13 percent in benefits. The most obvious solution is to do a combination of both, and the longer we wait, the worst the situation will get.

My Long Term Social Security Solution

Here’s a suggestion - Eliminate the Social Security System gradually. There are talks of privatizing the system as a solution, which is nothing more than letting us invest in our own benefits. If we all agree that it’s a good idea, just roll that program into our 401k system. We really don’t need an taxable investment account, 401k, traditional IRA, roth IRA, 529 for every person in the United States just so we can be confused with our investments. With separate programs, it’s nothing but politics anyway.

Now back to the system. I believe the best approach is to keep taxes the same, and maintain the benefits for current retirees but start paying new retirees less, then newer retirees even less until we aren’t paying retirees anymore.

As an example (the numbers and details are just hypothetical to illustrate the point), let’s say we are paying current retirees $2,000 a month. We will start paying new retirees $1,800, and every year later that you retire, you will be paid $100 less per month. Eventually, the Social Security system will be eliminated and younger workers won’t have to pay a dime.

Sure, retirees will get less benefits, but since they still have time, they will find a way to deal with it as long as the rules are clearly spelled out. As it stands now, no one has any idea how much benefits they will get and how long the system will last. Without factual information, how can we plan for retirement? And if we have to assume we won’t get any Social Security benefits in our planning, what’s the point of having that extra check?

Forget the bailouts. Work on Social Security.

This article is part of the Government Improvement Series, where I discuss on Fridays some ways that the administration can really help fix our great country.

—
Related Articles at Personal Finance Blog by Money Ning: