4 Ways to Fix Social Security
Social Security celebrates its 80th birthday today, and the popular program that provides paychecks for 44 million elderly Americans is in need of a safety net of its own.
As the amount claimed by recipients continues to outpace the amount of money contributed by workers, the system will need to dip into its reserves to keep up with its obligations by 2020. Within 15 years after that (if nothing changes), those reserves will be gone and the system will only be able to pay 77 cents on every dollar owed, an amount that will continue to decrease with time.
The problem is even more acute given that future retirees won’t have the same access to pensions that many current retirees use to fund their retirement, and younger workers haven’t saved nearly enough to cover the costs they’ll face when they stop working.
To close the projected gap, the country needs to raise revenue, reduce benefits or some combination of the two. Here are four of the most commonly proposed solutions:
1. Raise the retirement age. For most Americans, the full retirement age (at which you can get full benefits) ranges from 65 through 67. Advocates of this solution would reduce the amount the government pays in Social Security by gradually pushing back the age at which you’re eligible for full benefits.
The drawback: Many Americans are already forced into retirement before they reach age 65. If they claim early and receive reduced benefits they may not have enough money to meet their basic needs. Also, workers in physically demanding jobs many not be able to work those extra years.
2. Raise the payroll cap. Social Security is funded via payroll taxes, which currently are only levied on the first $118,500 of income. That means that high earners effectively pay a much lower rate toward Social Security than others. Hiking or eliminating that cap, advocates say, would create a fairer system and increase revenue.
The drawback: Critics of this solution claim that increasing taxes on middle- and upper-income earners would reduce their income and stifle the country’s economic growth.
Related: 6 Popular Social Security Myths Busted
3. Institute a means test. While the vast majority of recipients (80 percent, per AARP) rely on Social Security as an integral part of funding their retirement, extremely high net worth individuals don’t need the additional income. This solution would create a net worth or retirement income threshold over which eligibility for social security phases out.
The drawbacks: It could be politically difficult to settle on a threshold, which might vary depending on the geography of a recipient. Plus, this would require people to pay into a system from which they get no benefits.
4. Freeze the cost of living adjustment. Social Security payments have historically been adjusted based on inflation as measured by the Consumer Price Index. This has been minimal in recent years, but the long-term, compounding effect of inflation makes this provision incredibly expensive.The drawbacks: For many people, Social Security is the only inflation-linked retirement income stream that they have. Limiting it could push some retirees over the financial edge as prices rise.
Coming Soon: Deductible Relief Day!
You may be familiar with the concept of Tax Freedom Day – the date on which you have earned enough to pay all of your taxes for the year. Focusing on a different kind of financial burden, analysts at the Kaiser Family Foundation have created Deductible Relief Day – the date on which people in employer-sponsored insurance plans have spent enough on health care to meet the average annual deductible.
Average deductibles have more than tripled over the last decade, forcing people to spend more out of pocket each year. As a result, Deductible Relief Day is “getting later and later in the year,” Kaiser’s Larry Levitt said in a tweet Thursday.
Chart of the Day: Families Still Struggling
Ten years into what will soon be the longest economic expansion in U.S. history, 40% of families say they are still struggling, according to a new report from the Urban Institute. “Nearly 4 in 10 nonelderly adults reported that in 2018, their families experienced material hardship—defined as trouble paying or being unable to pay for housing, utilities, food, or medical care at some point during the year—which was not significantly different from the share reporting these difficulties for the previous year,” the report says. “Among adults in families with incomes below twice the federal poverty level (FPL), over 60 percent reported at least one type of material hardship in 2018.”
Chart of the Day: Pragmatism on a Public Option
A recent Morning Consult poll 3,073 U.S. adults who say they support Medicare for All shows that they are just as likely to back a public option that would allow Americans to buy into Medicare or Medicaid without eliminating private health insurance. “The data suggests that, in spite of the fervor for expanding health coverage, a majority of Medicare for All supporters, like all Americans, are leaning into their pragmatism in response to the current political climate — one which has left many skeptical that Capitol Hill can jolt into action on an ambitious proposal like Medicare for All quickly enough to wrangle the soaring costs of health care,” Morning Consult said.
Chart of the Day: The Explosive Growth of the EITC
The Earned Income Tax Credit, a refundable tax credit for low- to moderate-income workers, was established in 1975, with nominal claims of about $1.2 billion ($5.6 billion in 2016 dollars) in its first year. According to the Tax Policy Center, by 2016 “the total was $66.7 billion, almost 12 times larger in real terms.”
Chart of the Day: The Big Picture on Health Care Costs
“The health care services that rack up the highest out-of-pocket costs for patients aren't the same ones that cost the most to the health care system overall,” says Axios’s Caitlin Owens. That may distort our view of how the system works and how best to fix it. For example, Americans spend more out-of-pocket on dental services ($53 billion) than they do on hospital care ($34 billion), but the latter is a much larger part of national health care spending as a whole.
