How Can Social Security Be Fixed

Social Security is in trouble and must be fixed. Estimates are that revenues from Social Security payroll taxes are going to be ready to payout full benefits until around 2023. then , the Social Security fund will got to structure shortfalls. what's the Social Security Trust Fund? Well, when people pay into Social Security , some of these revenues attend benefits for current retirees. what's left is put into the fund . consider the fund as an IOU which will be redeemed to fund benefits when Social Security revenues come short of what's needed. actually , this money doesn't exist. it had been put into general governmental revenues and has long ago been spent. To redeem these IOUs, the govt will got to borrow. Current projections are that the fund will last until 2033 at which era Social Security taxes are going to be ready to cover only 77% of promised benefits.

The Stats

How important is Social Security . In 2010, 36 million people relied thereon for retirement income. on the average Social Security benefits cover about 38% of total retiree income. However, about 35% of recipients believe Social Security for 90% or more. By the year 2030, a full 25% of the population are going to be over 65 years aged . This dependency will increase dramatically because the wave of Baby Boomers retires. it's obvious that fixing Social Security should be a priority in Washington although serious discussions by the Congress and therefore the White House haven't yet begun in earnest. The political and social implications of not fixing the matter might be dire.

The Potential Solutions

Obviously something must be done, but what? There are variety of possible solutions that would close some of the funding gap. Each of those solutions has strong proponents also as others who are adamantly against the proposed changes. Some solutions are focused on controlling benefits while some are focused on increasing revenues. On the revenue side:

1. Raise the Social Security Tax Rate: In 1937, when the program began Social Security taxes were 2% on incomes up to a particular amount. This has risen over the years. In 1987, during the foremost recent overhaul, the speed was increased to 12.4%. Half is paid by workers and half by employers. Current estimates are that if the individual rate were increased gradually from 6.2% to 7.2%, we could eliminate over half the shortfall. If the speed for both individuals and employers increased to 7.6% the whole shortfall might be erased.

PROS: Can affect an outsized portion of the matter and is comparatively easy to implement.

CONS: Increases taxes which are unpopular and should have a negative impact on jobs and job creation as companies are required to pay more in taxes for every employee and hence, could also be hesitant to rent .

2. Lift the Payroll Tax Cap: Social Security taxes are only collected on incomes up to a particular amount. In 2014, once your income has gone over $117,000, you stop paying the tax. Estimates are that if this cover were gradually removed, about 71% of the Social Security shortfall might be eliminated. at the present , but 10% of workers have incomes that might be affected.

PROS: Can correct an outsized portion of the funding deficit, affecting only a comparatively small portion of wage earners.

CONS: Puts the burden of correcting the Social Security funding problem on alittle number of taxpayers. This raises questions of fairness and equity. Payroll tax caps are in situ since the very beginning of the program.

3. inquiry Social Security Benefits: Everyone who has paid into the system and meets some minimum criteria qualifies for benefits. Means testing Social Security benefits requires that if your non-Social Security income goes above a particular level, Social Security benefits are either reduced or eliminated. Current recommendations are to scale back benefits for people with non-Social Security income above $55,000 and eliminate them altogether when income is bigger than $110,000. once I read this, I wondered whether these income levels would be inflation adjusted annually. this is often important because withdrawals from 401K and IRA savings are counted as income and as inflation increases you would like to prolong more from savings. These limitations could put an increasing number of retirees in jeopardy annually if not adjusted?

PROS: Saves Social Security funds by withholding benefits from those least in need.

CONS: counting on the income criteria applied, this might be an enormous landmine for retirees, particulaly if the income limits aren't inflation adjusted annually. Remember the choice Minimum Tax (AMT) which was intended to form the rich pay their fairshare of taxes. Many within the bourgeoisie has been ensnared because income criteria haven't been inflation adjusted annually .

On the advantages side of the equation:

1. Raise the retirement age: People live longer than within the 1930's when the program was launched. the first retirement age was 65 years. within the 1940's, for people that made it to age 21 only 54% of males and 61% of females also survived to the age of 65. In other words, an outsized number of individuals paid into the system, but never collected benefits. In 2009, the survival rate had risen to 82% of males and 89% of females. In 1940 once you turned 65, you had an expected lifespan of an addition 12.7 years for males and 14.7 years for females. At 65 in 2009, this had risen to 17.5 years for males and 20.2 years for females. More people live long enough to gather Social Security and once they are doing , they collect for extended . In response to the present , commissions that have studied this issue have recommended gradually raising the retirement age to 70 by 2050. this is able to cover about 21% of the shortfall by reducing the amount the typical retiree would collect benefits.

PROS: People live longer and adjusting the age at which full benefits are available should be a minor imposition. this is often often true particularly if this is phased in and other people have time to regulate their planning.

CONS: Retiring at an older age works well for people in administrative and professional positions. However, for people that add physicall demanding occupations, retirement at age 70 could be unrealistic.

2. Reduce Annual Adjustments for Inflation: annually , Social Security benefits are increased by the speed of inflation. Currently this is often supported the buyer price level (CPI) for urban workers. One recommendation is to lower the annual increase by adopting what's called the Chained CPI. If you would like more information on this, Google "Chained CPI." internet is an estimated annual reduction within the inflation adjustment of 0.25%. If the traditional CPI would increase benefits by 3% for instance , the chained CPI would increase it by only 2.75%. While this looks like alittle change the impact are often substantial over time. this feature could cover about 20% of the shortfall.

PROS: a reasonably simple thanks to preserve Social Security funding.

CONS: Some feel that the "Chained CPI" concept is flawed. the particular rate of inflation for retirees is perhaps greater than that for urban workers, the idea for current annual Social Security adjustment. If retiree income is currently not be adjusted adequately for inflation, further lowering the annual inflation adjustment could create real problems, particularly because it compounds over time.

So, as you'll see, there are tons of proposals, although little action up so far . Clearly something has got to be done to repair Social Security . However, there are three questions that require to be considered as we move to a solution: 1) What set of options actually will solve the matter , 2) from the attitude of what you pay in and what you get reciprocally are the solutions fair and equitable, and 3) are you giving retirees and near retirees enough time to regulate to any changes which will affect their income and standard-of-living. After all, this is often both a financial and a person's problem. within the move to an answer , let's not forget that.

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