Podcast: Play in new window | Download
Social Security is always a hot potato issue in this country, and this critical social program continues to lurch from one disaster to the next. Over 22 million people rely on Social Security in the United States, and many of the recipients are among the poorest and most vulnerable people in society. Yet the ability of Social Security to continue to support the retired, the disabled, and the relatives of the deceased, looks likely to be severely compromised.
A report published last year by the Social Security Board of Trustees documented the demographic shift that will pose serious challenges for the Social Security budget.
Vast numbers of retirees who are living longer, combined with lower fertility rates from younger generations, may combine into a cocktail that spells bad news for the Social Security system.
There are currently $2.9 trillion in asset reserves to call upon, but anyone familiar with vast social systems will know that this is nowhere near as much as it sounds. Indeed, projections indicate that by 2034, this money will be completely exhausted, forcing the government to reduce its monthly payout to eligible beneficiaries.
Kicking The Can
Obviously, this is not a particularly palatable prospect, and it is quite apparent that strong action must be taken sooner or later.
But, alas, both Republicans and Democrats have been only too willing to kick this unappealing can down the road. This is not new news! It is something that has been known about for years, for decades, and even for generations. Yet there is little political will to address what is unquestionably an extremely serious conundrum for our society.
One possible answer was revealed recently when the Social Security 2100 Act reared its head once more. Rep. John Larson’s bill was first introduced nearly five years ago without gaining much traction in Congress. But with Democrats now in control of the House and 200 Republicans willing to sponsor the bill, there is a possibility that it could be received more favorably this time.
The Social Security 2100 Act is intended to reverse the deficit and create a $2.1 trillion surplus. In order to achieve this, seven key planks of action are proposed, but I’m going to highlight five:
- The primary insurance amount formula factor will be increased from 90% to 93% beginning in 2020. This means that the amount a retiree is due to receive upon reaching retirement age would be increased.
- The calculation for the annual Cost of Living Adjustment will be switched from the Consumer Price Index for Urban Wage Earners and Clerical Workers to the Consumer Price Index for the Elderly, which makes adjustments related to seniors aged 62 and up. This would more closely track the actual cost of living for those in the retirement-age bracket.
- The proposal would adjust the taxes you have to pay on your social security benefit. The Act would increase the taxation point from $25,000 currently to $50,000 for single filers and from $32,000 to $100,000 for joint filers.
- It would add a new level of taxation to those with earned income above $400,000. Right now, payroll taxes are deducted up to maximum earnings $132,900 of income. Taxation would start again for income over $400,000.
- The payroll tax for all workers would gradually increase from the current 12.9% to 14.8%.
None of these proposals are exactly earth-shattering, but when enacted in combination, they could achieve something serious. Criticism that the bill doesn’t do enough to help the poor is one of many of its problems and may prove to be irrelevant since the act is far from certain to pass through the Senate and obtain presidential approval.
With the Senate under Republican control, the act may be on life support before it gets anywhere significant. The GOP instead envisages a steady increase in retirement age as a preferred solution to the Social Security issue. Eventually, this would result in Americans becoming eligible for their full monthly payout at the age of 70. There is precedent for this in other countries; several European nations have similarly upped the age of their citizens in response to similar challenges.
And there is also no guarantee that President Trump would be willing to sign the legislation into existence. While the president hasn’t explicitly outlined his perspective on social security, he has publicly stated that he believes making direct changes to Social Security would be a dreadful political decision. So, all of the politics that surround this “Third Rail” of policy still seem more motivated by political expedience than a genuine desire to address the situation. Hopefully, with the looming 2034 deadline, this will not be so, but if nothing happens, we’ll be back to where we started and kicking the can once more.
I ask you, in this uncertain climate, is it any wonder that there is a Social Security crisis in the first place?!
This article contains the current opinions of the author and are not necessarily those of United Capital Financial Life Management and does not represent a recommendation on of any particular security, strategy, or investment product. Such opinions are subject to change without notice. Information contained herein has been obtained from sources deemed to be reliable but not guaranteed. Certain statements contained within are forward looking statements including, but not limited to, predictions or indications of future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Past performance does not guarantee future results.
• Biggs, A. Why Social Security Expansion May Stiff the Poor. NationalReview.com
• SSA.Gov. THE 2018 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND FEDERAL DISABILITY INSURANCE TRUST FUNDS.
• Larson, J. My Social Security 2100 Act shows that Social Security is affordable