When Social Security was first implemented there were approximately 20 workers contributing per recipient. Even FDR made it clear the Social Security “is not the end but rather a means to an end.” The program was never intended to be all an individual would need to retire comfortably, yet it has often been treated that way. The current number of contributors to the trust is 3 to each 1 recipient. Our government forgot to do the math along the way and now Social Security is on its way to being insolvent, which means at our current levels, we will all be forced to pay additional taxes to cover the cost and future generations who may have paid into Social Security for years will be cheated out of receiving anything.
Liberals present the false choice that to reform Social Security is to destroy it. The fact is Social Security is insolvent and our elected leaders must apply some catch up math if we are to save it. Given that life expectancy has increased from 50 years to over 80 we must make adjustments as soon as possible and gradually phase that adjustment in over the next decade so as not detract from a fund that so many of our seniors depend on. However, at our current level of unemployment, with 25 million either unemployed or underemployed, and with social programs designed to keep Americans out of the workforce (like Obama’s executive gutting of welfare reform), the number of contributors is far too low. As we restore jobs, contributions will return and saving Social Security will be much more realistic.
Social Security must remain the safety net against poverty and destitution in old age as it was designed. Social Security should have been solvent indefinitely, but because politicians have raided the fund for short-term political advantages this is not the case. The requirements, contributions, and disbursements must all be adjusted so we can restore solvency and reflect current demographics.
One policy change that could alleviate the pressure on disbursements is to remove the cap on the Social Security Wage Base, making Social Security a flat payroll tax and then reducing the rate. By doing so, it would reduce the liability on lower and middle income earners while providing more overall funds into the trust. Social Security was a promise made that the government has failed to keep. Another potential solution to alleviate costs for Social Security is a low-cost buyout for high income earners equal to 1/3rd of what that person could receive, based upon average life expectancy.
Using the calculator at socialsecurity.gov, we calculated for a person earning an average of $100,000 a year and retiring at retirement age of 62 presents a liability of approx. $443,000 over 20 years, and a person that retires at age 67 presents a liability of approx. $463,000 over 15 years. Indexing a buy-off to 82 years (as an example) at 1/3rd of this liability would present a one-time cost of approx. $ 146,000-$153,000, but would save the program about $290,000-$310,000 in direct dollar value. In turn, a person making use of such a windfall could place that in an investment vehicle they individually own with a better rate of return. Such income owners have already shown a propensity for investment and savings and receipt of such a buyout would dramatically reduce the government’s liability while the money is reinvested into the economy.
Measures like this would have to be used on the way to eventually preclude the need for any federal assistance. Ideally we could get to a system where people could save and invest in their retirement with their own money at a better rate of return, preventing politicians from raiding the trust fund and keeping the money where it belongs, in the hands of the people who earn it.