Showing posts with label can Social Security be saved. Show all posts
Showing posts with label can Social Security be saved. Show all posts

Wednesday, March 15, 2023

Can Social Security Be Saved? Yes, With a Few Changes

 Nearly every retiree, and many younger adults, have heard the alarming news that the Social Security Trust Fund will run out of money in another ten years or so, although the exact date changes regularly.  Some people believe this means that Social Security payments will completely end at that time.  That is NOT true.  However, if the government does not take steps to strengthen Social Security, it is true that benefits could be automatically cut by 20% once the trust fund is fully depleted.  That would be devastating to many people, but not quite as bad as eliminating Social Security completely.  The sad fact is that this problem could be entirely avoided, if Congress takes a few steps now to assure that the Social Security Trust fund has enough money to continue to operate well into the future.

According to official reports in mid-2022, below are the current estimates on how long full benefits can be paid out, even if nothing is done is improve the financial strength of these important programs:

"The Social Security trust fund most Americans rely on for their retirement will be able to continue to pay out full benefits on a timely basis until 2034, one year later than the Treasury Department estimated last year, according to an updated report published by the government.

The improved analysis, signed by Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh, projects that the government’s disability insurance program will be able to pay full benefits over the next 75 years, the first time Social Security officials have issued such a rosy outlook since their 1983 report.  Last year’s report estimated the Disability Insurance Trust Fund would be depleted in 2057. 

Medicare Part A will remain fully financed through 2028, two years later than previously projected, the government said."  


What Steps Could Save Social Security Even Longer?

According to AARP, there are a number of actions which Congress could take in order to prevent senior citizens from being forced to take a 20% cut in their Social Security benefits in another few years.  This is a looming problem which can be prevented.  Although there are many possible solutions, below are some which have been suggested by AARP and other advocates for senior citizens.  

Raise the Cap on the amount of wages subject to Social Security withholding - Currently, someone who has a salary of $1,000,000 pays the same Social Security withholding as someone with an income of $160,200 (the current 2023 cap).  Increasing this cap to an even higher level would increase the amount of money going into the Social Security Fund.

Keep the Cap, create a "donut hole," and resume withholding at a higher income threshold - For example, keep the current $160,200 cap, but resume withholding on higher earners, such as those earning over $400,000 - $500,000 a year in wages, or some other number to be determined by Congress.

Increase the payroll tax rates - The current Social Security withholding tax is 12.4 percent.  It could be raised to 14.4 percent, but this would affect the lowest wage earners the most.  Another choice would be to raise the payroll tax rates on incomes over $100,000 or some other designated amount.

Increase the number of people paying into the Social Security system - Many state and local employees are not covered by Social Security.  They are only covered by public pensions.  In fact, in about half of the states in the U.S., people receiving a public pension are either denied their Social Security benefits, or they are forced to accept substantially lower Social Security payments, even on income they earned in addition to their public service job.  The rules that deny them their benefits are the WEP and the GPO.  These rules could be eliminated by Congress.  Millions of workers would benefit by being included in both the Social Security system as well as their private pension, and this would mean more people paying into the program.  Of course, this would also mean more people receiving the benefits they earned in the future.

Broaden the definition of income - Some types of income are not covered by Social Security payroll taxes.  This includes investment income.  As a result, many people do not pay withholding on their income, even if they are high earners.  If everyone was expected to pay into the Social Security Trust Fund, regardless of the source of their income, this would help protect the integrity of the program.

Congress could add money to the Social Security trust fund from other sources - Because making significant cuts to Social Security would throw millions of Americans into poverty and cost the government even more money by forcing it to provide other types of aid, it would make sense for the government to supplement the Social Security Trust Fund with money from the general fund or other sources of extra income.  It actually hurts the government more when fewer people are paying into the Social Security Trust Fund, and then many of them end up collecting other types of benefits such as SNAP (food stamps), housing assistance, and SSI (Supplemental Assistance Income).  It would be much better if Congress fixes Social Security so that millions of people are able to survive on their earned benefits, without these other types of assistance.

Reduce Social Security benefits for people who also have a high income or a lot of assets - This would allow the people with the lowest income and fewest assets to continue to get their full benefits, and only those who are financially secure with other sources of retirement income would have their benefits cut.

Cut the projected benefits for new beneficiaries by 3 to 5 percent -  This would mean that current beneficiaries could continue to receive their promised benefits and new beneficiaries would only receive slightly less when they reach retirement age. This would also allow younger adults time to save more money towards retirement, to make up for the deficit.

Change the way benefits are calculated so new beneficiaries receive a lower payout - This is similar to the above suggestion. Currently the Social Security Administration calculates your benefits based on your 35 highest years of salary.  If they changed that to the 40 highest years of salary, the average income base would be lower, which would result in lower benefits for most people.

Reduce the size of the annual Social Security COLA (Cost of Living Adjustment) - This would help the program in the short-term, but receiving a COLA that is less than the rate of inflation would compound over time, until eventually more beneficiaries would fall into poverty and need other types of government assistance.  Many retirees already feel that the current COLA does not keep up with inflation, so this could make the problem even worse. 

Gradually increase the age when people can collect their benefits - Instead of age 62 as the lowest age to collect, and age 67 to receive full benefits, those ages could be increased a month at a time.  As of this writing, the Republican Study Committee and House of Representative leaders have proposed that Social Security's full retirement age gradually be increased by three years so that people born in 1978 or later would have a full retirement age of 70 instead of 67.  They would also like to increase the age for early retirement from age 62 to a later age.  However, this proposal is likely to hurt people the most who have spent their lives working in low-income, physically demanding jobs, because people in those positions often have to retire sooner than they expected. 

Combination of Above Suggestions

The most likely solution will be some combination of several of the above ideas, so that no single suggestion affects a specific group of people too much.  The important thing to recognize from this information is that there are solutions that would fix Social Security, and if done properly, the changes would only cause minor inconveniences to most people.

What You Can Do

Whether you like one or more of these ideas, or you have other suggestions of your own, WRITE  YOUR  CONGRESSMAN  AND  YOUR  SENATOR and insist that they take Social Security off the back burner and address the problem.  There are solutions.  There is no reason why anyone should have to fear losing all or a significant portion of their Social Security benefits in the future, but Congress needs to take action to protect the millions of people who depend on this program during retirement and who paid into it for decades. 

Readers are also encouraged to update their private retirement planning, by making sure that they are putting as much money as possible into a 401(k) or IRA.  They may also want to investigate ways they could turn a hobby into a side income during their retirement years, so they are not totally dependent on Social Security.

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Wednesday, March 27, 2019

Social Security: Facts Everyone Should Know

There is so much misinformation on the internet about Social Security, it has become imperative that we dispel as many of these myths as possible.  In addition, a large number of people do not understand the basic facts about this essential government program, which is especially unfortunate since the vast majority of adults in the U.S. have either paid into the program through withholding from their paychecks, or they currently receive Social Security benefits.  As a result, we researched basic factual information directly from the Social Security Administration website, as well as the AARP, and the National Committee for the Preservation of Social Security and Medicare and are sharing this information below.

Facts Everyone Should Know About Social Security

Fact: Social Security still has plenty of money to pay benefits.  The Social Security trust fund currently contains about $2.89 trillion.  In addition, millions of workers continue to pay into the program.  For decades, more money was collected than was being paid out in benefits and the extra money accumulated in the trust fund.  Starting in 2018, the Social Security Administration began to dip into the trust fund to maintain the promised level of payments.  If nothing changes in the future, the trust fund will be empty by sometime around 2034, and future retirees will only be able to collect about 79% of what they have been promised.  Benefits could continue to be paid for decades at these reduced levels, because workers would continue to pay into the system.  At no point would Social Security completely run out of money and be unable to make payments.  Fortunately, the full promised benefits could also be maintained with only a few minor changes to the program.  The National Committee for the Preservation of Social Security and Medicare has recommended specific adjustments which, if implemented by Congress, would assure beneficiaries there is no need to cut benefits in the future.

Fact: We need bi-partisan pressure on Congress to make the necessary changes and maintain the promised benefits.  Although it would require very small changes in order to preserve the full level of Social Security payouts, it has been difficult to get both political parties to agree on anything, even something as important as Social Security.  We need voters in both parties to put pressure on their members of Congress to reach an agreement and protect the program.

Fact: Only a few minor adjustments are required to protect our benefits.  Ideas for saving Social Security fall into three categories, which could be implemented gradually.  These recommendations are: raise the cap on payroll taxes above the current income level of $132,900;  raise the percentage rate workers and employers pay by 1/20th of 1 percent every year for the next 20 years, so that it will only go up by a total of 1 percent over a period of 20 years; slightly raise the age for people to collect their full retirement benefits.  That's it.  If Congress could agree to gradually make those three changes, ALL our promised benefits would be protected for ourselves and future generations, and cuts would not be necessary.

Fact: The Social Security Trust Fund has not been raided by Congress.  This often repeated story is not true. The confusion is because the money we pay in has been invested in U.S. Treasury securities and the government can use the invested money, but must pay it back with interest.  Congress does determine how much money can be used on administration and, in that way, a large amount of the incoming receipts have been eaten away by administrative costs, which is why it may appear that the trust fund has been raided.  Some people believe that modernizing systems and improving efficiency would reduce some of the administrative costs.  However, these expenses can never be entirely eliminated.

Fact:  Social Security is not meant to be your sole source of retirement income.  Unfortunately, approximately one-quarter of retirees rely on their Social Security benefits for nearly all of their living expenses after retirement.  Encouraging workers to put more money into 401(k) and IRA retirement accounts would help future retirees have a better quality of life.  This is especially important because, historically, Social Security benefits have NOT kept up with inflation. It is never too late for workers to begin saving for retirement.  The younger you are when you start, the better off you will be in the future.  Ideally, everyone should retire with a nest egg of retirement savings, as well as low debt, if they want a relaxed retirement.

Fact:  Your Social Security benefits may be taxed.  Currently, thirteen states tax your Social Security benefits. Those are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.  However, even if you do not retire in one of those states, you are not off the hook for income taxes on Social Security. At the federal level, you may have to pay income taxes on up to 85 percent of your benefits if your combined income from all sources exceeds about $34,000 for a single retiree and $44,000 for a couple.  Many people believe that Congress should significantly raise these income levels or exempt Social Security from taxation for most people, because it makes no sense for the federal government to tax our federal Social Security benefits, except possibly for those with a very high income. Personally, I agree that paying federal taxes on federal benefits simply makes life harder for middle class retirees.

Fact: You can work and get Social Security benefits at the same time, but be careful!  If you work and collect Social Security benefits prior to your full retirement age of about 66 or 67, your benefits will be cut.  If you work after reaching your full retirement age, your benefits will not be cut, but it could increase the amount of taxes you pay on your benefits.  You may want to discuss the pros and cons of your specific retirement job and expected income with a tax professional, so you are certain that a retirement job will not hurt you more than it helps you.

Fact: The Social Security Administration only makes electronic payments into an account.  They no longer mail checks to beneficiaries; the funds have to be direct deposited into a bank account.  This has cut administrative costs and reduced the number of lost or stolen checks.  If you live in another country and have a bank account there, your benefits may be deposited directly into a foreign bank account in many, but not all, countries.  Hundreds of thousands of American retirees receive their benefits in a foreign country.  Other retirees have their checks deposited into American banks, and then transfer it into their foreign bank accounts as they need it. 

Fact:  You can only collect one type of Social Security benefit at a time.  Social Security has four different programs: retirement, disability, dependent and survivor. You can only collect from only one of these programs at a time, so it is important to discuss changes to your situation with the Social Security Administration and determine which benefit would earn you the highest income.  For example, if you currently receive benefits on your own work record and your spouse dies, you may be eligible to increase your benefits by claiming survivor benefits, instead, based on your spouse's work record.  However, you cannot collect both. You may only collect the one which will pay you the most.

Fact: The good news is that the majority of people receive more in benefits than they paid in!  According to research by the Urban Institute (which you can review at, the majority of people receive more lifetime Social Security benefits than they paid into the program during their working years, and this is true for both high income and low income earners.  Of course, there are exceptions when someone dies before they retire, or shortly after retirement, but the majority of people have significantly benefited financially from the program.  This is all the more reason why everyone should put pressure on Congress to fully finance the program.

Before you claim your Social Security benefits, you may want to learn as much as possible about the program by picking up a book which explains everything in easy-to-understand language.  You can find a variety of Social Security guides from at:  Social Security books.  

Readers can also get more information by visiting these websites:

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common medical issues and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

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