As promised, I wanted to share some ideas to reform Social Security and make it more viable. My premise has been that this should be a much more simple task than doing the same for Medicare. It makes sense right? Social Security benefits are paid as income and calculated based upon some formulas (how much you contributed, how long you worked, what age you chose to begin receiving it, and a cost of living adjustment). Medicare benefits, by contrast are based upon unpredictable variables (health care needs for any given individual, services rendered, the costs of those services, increases in costs for the services over time)
My initial exploration into the realm of Social Security reforms resulted in discovering some “good” news, and some bad news. The “good” news is that even though Social Security is currently paying out more than it is collecting, the system isn’t broke. Social Security established a significant surplus as money paid into the Social Security Trust Fund exceeded expenditures for every year from 1984 to 2009 (which was more of a break even year). At that point, the perfect storm hit – the great recession, payroll tax holiday, and increasing numbers of baby-boomers retiring and taking Social Security Benefits. Even with an improving economy and the elimination of the payroll tax holiday, it appears the days of surplus are over due to the demographic bulge of the retiring baby boomers and fewer workers to support them.
The Social Security Trust Fund would appear to be simple from an accounting perspective, and perhaps to an accountant it is, but I’ve also noticed that it is subject to misinformation. Here’s the best source of info that I’ve come across from the Congressional Research Service, which, as the name implies, prepares reports for members and committees of Congress. http://www.fas.org/sgp/crs/misc/RL33028.pdf
The other sort of good news is that even when the surplus is gone (current estimates are for that to happen in about 2033) Social Security will not be “broke” because there will continue to be workers paying into it. At that point, it is estimated that benefits would be subject to about a 25% across the board cut. Not great, but not exactly the doomsday scenario of there being zero money to pay retirees at that point.
So, how do we avoid that painful of a benefit reduction? I really will get into this next time, but wanted to contextualize things first.