“It is with great satisfaction that I have signed into law the Social Security Amendments of 1961. They represent an additional step toward eliminating many of the hardships resulting from old-age, disability, or the death of the family wage earner. . . . A Nation’s strength lies in the well being of its people. The social security program plays an important part in providing for families, children, and older persons in time of stress, but it cannot remain static. Changes in our population, in our working habits, and in our standard of living require constant revision.” — John F. Kennedy
As the government’s most expensive program, which affects millions of workers and faces the possible need to reduce payouts by 2037 if not sooner, leaders of both political parties need to eventually do something productive. What they choose to do would affect each and every single one of us (Gen Y, Gen X & Baby Boomers) in different ways, ranging from no change in our circumstances to potentially large adjustments in lifestyles for some.
A Republican party position would allow us to invest some of our Social Security savings in the stock market. Democratic parties favor, and advocate for, higher taxes on the wealthy in order to ensure Social Security’s solvency.
Allow me to make one statement before continuing. I consider myself neutral in the political debate, and that’s not what this post is intended for, beyond desiring a solution that doesn’t lead to crisis.
I’ll examine possible approaches and solutions that I believe (as well as many others) would lead to financial health for retirees.
When it comes to Social (in)Security, here are two general principles:
- Social Security should be fair for all beneficiaries without the ability for anyone to “manipulate” the system.
- Individuals need to be able to supplement Social Security with retirement accounts designed to deliver secure income during retirement.
That being said, this month I’ll offer 6 proposals that provide common sense solutions to the problems we’re facing. In the grand scheme of things, $1,200 to $1,400 per month (or whatever your number is) for an individual, or say, $2,100 per month for a married couple isn’t enough money to continue your desired lifestyle, let alone any lifestyle at all.
- Allow a gradual move into Social Security benefits. As people live longer, more of them prefer to cut back on their full time work, but do not stop working completely. So let them pursue their passions and receive a portion of their Social Security benefits necessary to complement their earned and working income. Payouts would increase in the long-run, but cash flow would be lower in the short-run as stated in the next solution.
- Permit deferral beyond 70 years of age. The later people start benefits, the more money they would receive each month. Why start payments early at 62, or 66 (full retirement age) when they could be deferred as long as possible? Let’s prohibit early claiming in general. Deferring payments reduces the outflow of cash available from the system and buys time for younger earners to enter the job market and start paying their share of taxes.
- Authorize buy-in into Social Security system from a 401(k), 403(b) or Rollover IRA savings. This would provide new cash infusions for the system and in return provide an additional annuity of guaranteed, inflation-adjusted income to individuals.
- Continue benefits when people drop out of the workforce to care for aging parents or when raising children. There is a cost associated with this proposal that would have to be offset by slightly higher taxes on participants.
- Increase Social Security tax brackets to keep pace with an increase in benefits. Currently, tax brackets are not increasing with inflation, causing more Social Security benefits to be taxed.
- Offer a universal IRA to everyone. Whether working a 9–5 corporate job or not, this should be available to everyone. It, too, needs to be convertible to Social Security at the appropriate time.
All of these ideas are designed to support the long-term health of Social Security, provide basic retirement benefits and a taste of freedom to everyone who is interested. There certainly isn’t the political will to put in place any of this now — that would take certain agreements. None of us have a crystal ball so who knows what will happen to this system in the future. Only time will tell.
If you want to talk more about money or Social Security I’d be happy to continue the conversation.
My Very Best,