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Dennis Ross
Dennis RossRepublican, FLCurrent Position:Congressmansince January 01, 2011
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Political Article

Social Security - It Isn’t Social, And It Sure Ain’t Secure
Many people are worried about the sustainability or Social Security. In fact, over the past 20 years, there have been several instances where the media reported that funding would run out in ‘the next ten years’.

Currently, SSA.gov anticipates that the Social Security trust funds that pay retirement and disability benefits could possibly be depleted by 2035. The primary reason why is that the number of people collecting Social Security benefits has grown far faster than the number of people paying into the funds.

The chart below shows that there is currently only 2.8 people paying into the system for every person receiving benefits. And with the Baby Boomer generation now starting retirement age, the funds could be reduced even more quickly.

Year

Covered 
Workers
(in thousands)

Beneficiaries
(in thousands)

Ratio

1950

48,280

2,930

16.5

2000

155,295

45,166

3.4

2013

163,221

57,471

2.8

Source: https://www.ssa.gov/history/ratios.html

There appears to be no doubt that we’ll have to do something to save Social Security for future generations. The question is “What reform would work best?”. 

This article looks at the background behind Social Security, then provides suggestions for reforming it.

Some Background

Social Security’s Inception

The Social Security Act was signed by FDR on 8/14/35. The program was designed to pay retired workers age 65 or older a continuing income after retirement.

Taxes were collected for the first time in January 1937 and the first one-time, lump-sum payments were made that same month. Regular ongoing monthly benefits started in January 1940.

Current Age For Social Security

The full benefit age for collecting Social Security benefits is 66 years and 2 months for people born in 1955, gradually rising to 67 for those born in 1960 or later. Early retirement benefits will continue to be available at age 62, but they will be reduced more.

When the full-benefit age reaches 67, benefits taken at age 62 will be reduced to 70 percent of the full benefit and benefits first taken at age 65 will be reduced to 86.7 percent of the full benefit.

Social Security’s As A Percentage of Federal Expenditures 

Presently, the Social Security program is the largest single item in the federal government’s annual budget. As a percentage of total federal expenditures, payouts are about 25% of annual federal expenditures.

How Social Security Taxes Are Calculated

The Social Security Act set the initial tax rate at 2% (employee and employer combined) and specified increases that would bring this rate to 6% by 1949. The current tax rate is 12.4%.

Social Security taxes are calculated by taking a set percentage of your income from each paycheck. This percentage is determined by law each year and applies to employees and employers. For 2018, both employees and employers must contribute 6.2% of employee compensation, for a total of 12.4%. Those who are self-employed are liable for the full 12.4%.

Potential Solutions

Below are several suggestions for reforming Social Security.

=    > Do Nothing
Some say we need do nothing, as the funds and interest earned are on target

=     > Raise The Minimum Age For Receiving Benefits
People are now living longer, which means collecting more benefits and thereby reducing the amount of funds in the Social Security Trust even faster. So why not move grandfather in those born before say 1970 and raise the base age for staring benefits to 70 for those born after 1970?

=    > Means-Testing
America is lucky to have many individuals who can afford not to need Social Security. So why not either reduce or eliminate some benefits, or incentivize some to opt-out of or donate their payments?

=    > Allow Individuals To Opt-Out Entirely
Permitting some people to opt out – say at a certain age – in return for not having to pay the SS tax. This option is a bit riskier, and would have to include some safety clauses whereby those people who don’t save enough for retirement don’t get to abuse the system by collecting other state or federal benefits.

=    > Allow Individuals To Invest Some Portion Of Their Funds In The Stock Market
If you took the time to determine your rate of return on your ‘social security investment’, you’d probably be disappointed. So why not allow some people to invest some portion of their Social Security taxes in the stock market. It could be similar to how companies offer investments in 401(k) programs, with individuals having several fund choices. The advantages here are better returns, less reliance on government benefits, and a big boost for our stock market. To guard against the disadvantage of a market downturn, fund options could be limited based on age. For example, someone five years from retirement would be prohibited from investing in risky funds and allowed to invest only in Treasuries or Bonds.

Bottom line, based upon the number of people soon to be eligible for Social Security benefits and the potential for those funds running out in the near future, doing nothing is not a viable option. As such, our politicians need to come up with real, viable, and bold solutions. Some of the options posted above may work, or there may be better ones, but we need to do something. What do you think?

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