There has been a great deal of discussion regarding social security and in this article I will discuss some of the changes that can be considered to protect the long standing program.
First of all, let's discuss the problem which is that the baby boomers are now retiring at an accelerated rate which will exhaust the funds surplus in twenty five years.
At that point, the fund will be able to pay seventy five cents of every dollar owed to future beneficiaries.
FICA taxes comprises 80% of the revenues received by social security which charges a 12.
4% tax on income with 6.
2% on workers and 6.
2% on employers.
This is a pretty easy formula to comprehend and we need to determine what kind of things we need to do to ameliorate the shortfall which is projected to occur by 2035.
One of the ideas that has been discussed is to raise revenues.
This can be done in a couple of ways.
First, we can raise the cap on income subject to FICA taxes.
Currently, the limit is $106,800 and if it is raised to $190,000 31% of the gap will be bridged and if completely eliminated it will close 99% of the gap.
Another idea that has been suggested is to raise the payroll tax rate on both employers and employees.
An increase from 6.
2% to 6.
7% will eliminate more than half of the shortfall.
Another suggestion is to raise the retirement age which has some support.
The thinking is that we are all living longer and therefore increasing the age to retire form 66 to let's say 70 by 2040 will close 65% of the gap.
Another idea is to index payments or lower annual benefits as life expectancy is increasing.
This will close 21% of the gap.
There are a few other ideas on the table including changing the annual cost of living adjustment and even allowing private accounts.
There has been a great deal of noise surrounding social security and if you analyze the problem it is not as bad as many politicians have advertised.
The program is not broke and with some rather minor changes it will be healthy for a very long time.
It is my opinion that a combination of raising the retirement age coupled with raising the cap on income subject to FICA tax will solve the problem.
As long as these ideas are implemented soon, it will be relatively painless.
Slowly raising the retirement age to age 70 over the next 30 years will not be painful for most as longevity will continue to increase.
Also, it seems fair to me to raise the income cap form 106,800 to somewhere between $160,000 to $190,000.
Rather than wasting our time calling social security a Ponze scheme or threatening to allow the states to administer the program let's solve the problem.
It will not be that difficult and we should roll up our sleeves and get it done.
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