I fixed Social Security—and you can, too!

Most of us are pretty convinced we could do a better job than our politicians. Personally, after my social policy studies way back when at the University of Chicago, I became less certain that even the best intended people could fix all that much, but it hasn’t stopped me from pontificating. The Republican party is welcome to draft me as their presidential candidate. Although I’m a lifelong Democrat, I couldn’t be any worse or more out of synch than the current nominee. But let’s get back to a program that affects all of us—Social Security.

There are about a million scary articles on how Social Security will run out of money, and my younger clients nearly always have a fear that Social Security won’t be there for them. I’ve been hearing that same song since I, myself, was a graduate student and now that I’m closer to circling distance, it’s still there. In fact, in my lifetime government services to the elderly and disabled have vastly expanded and improved, and that’s a good thing. Sadly, Social Security was only designed to put a floor under old-age retirement (in an era when people still had private employer pensions) and it hasn’t kept up with the real need for a basic guarantee of a decent living standard for those dependent on it as principal or only source of income.

Now you can try your favorite policy solution by going to the University of Pennsylvania’s Wharton School Social Security Policy Simulator. This has several slider buttons you can play with to see what change(s) might make the System solvent, or for how long you can keep it afloat. I chose increasing the payroll tax rate from 12.4% (current) to 14.4%, which I think is pretty minimal, and increasing the taxable maximum income to $400,000+ (in other words, just about everybody). If only they would listen to me, instead of running out of money in 2030, the current scenario, it wouldn’t run out of money until 2070.

I was dismayed that my favorite solution (increase the taxable maximum), didn’t solve things on its own. It just makes no sense to me, and never has, to let the highest earners off the hook as they earn more than $118,500. Those who least need the break get the most benefit. However, I hate the idea of any tax raise as much as any blue (oops, red)  blooded American, so I was dismayed that to make it work, I had to give us a tiny tax uptick. For comparison, take a look at this tax summary of employer social security tax rates in other countries. Plenty of countries pay far more than we do, and many pay less.

It’s important to remember here that the US Social Security system was never set up to be a true annuity program. Roosevelt wanted to cover people immediately–low-earning people like my iron miner grandfather–who had never paid into the system but desperately needed old-age support. Often people (again, like my grandparents) would have been too proud to participate in the system if it had been “welfare” but by pitching it as an entitlement program in which everyone would participate, people bought in. But current contributors have always paid for those before them–so it’s not accurate to say, “I paid in and now I want it back” in the same way as an investment or annuity works.

Unfortunately, not all the options I would implement as dictator are available in the UPenn simulator. What about making Social Security benefit amounts a sliding scale based on income in retirement? (Is Donald Trump collecting Social Security?) What about funding it from general revenue? What about some way to assess the economic impact of better benefits instead of throwing people on the general public welfare system, and bankrupting them before getting them there? What about the impact of immigrants earning and contributing?

Curious what the candidates propose? Of course you can go to their websites for details. Hillary Clinton’s proposals are here and Donald Trump’s are here. That’s right, no link. He doesn’t have anything on his website addressing Social Security (not that I could find, at least).

I do invite you to try out your own solutions on the UPenn simulator. If nothing else, you’ll see that it’s not a quick and easy fix. And if you want to take a look at your own personal retirement situation, check in with me—I’m here to help.

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Posted in General Financial Planning, Retirement Planning.

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