3 Things That Could Save Social Security

Well number three is the most popular among ways to salvage SS and I hear about it often. I believe 82.5% of all earnings are covered and taxed under SS, plus 5.7% of earning exceed the cap (2014 data Wall Street Journal).

What caused some of the short fall along with longer life span and the many baby boomers was a slowdown in the average wage index. It is used to calculate increases in the S.S. earnings cap. With the index not moving up and increasing the cap amount of earning that would be taxed by S.S. it led to less money then expected flowing into SS. It is not working because wage growth slowed. In 5 years leading up to 1983, the increase as calculated by SS was 8.256%. In the 5 years leading up to 2014, the average was 1.576%. The wage index went down by 1.51% in 2009 the year the recession hit bottom.

Since benefits are based on earnings, raising the earning cap would also mean that better-off recipients would also increase their benefit. Although not in proportion to their increased taxes. That is because SS benefits are structured to replace more of the earning of the lowest earning recipients and a smaller percent of income of top earners. The strong perception that people paid for the benefit they're receiving, would not be as strong for high earners, and would feel more like a welfare program where one group pays and another group are recipients.

Congress could care less about saving and/or fixing Social Security. They have their cushy pension. Who cares about the rest of us? Take a look at the tax bill they're fixin' to foist on us and you'll see who they care about.

Since my kids are likely to live another 5-10 years longer than I will, I think #1 is entirely reasonable and prudent. With 10,000 people turning 65 daily, we obviously need to do something.

Bruce - I see where you're going, but context is everything. Your numbers about wage growth from 1978-83 fail to recall the miserable economic picture during that era. Inflation was out of control. http://www.multpl.com/inflation/table
1978 - 6.8%
1979 - 9.3%
1980 - 13.9%
1981 - 11.3%
1982 - 8.39%
With those numbers, wage increases of 8.256% pale in comparison. Which indeed, they did. Salaries were disastrously behind inflation. Mortgage interest rates were beyond outrageous when they got over 17%. http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp?Y=1982&M=4

Getting back to the current SS problem, I agree that raising the cap on taxable income would also raise the cap on benefits for higher earners, though there would still be a net revenue increase. (What would happen if disability income was stripped from the SS program and paid out of a different pot? I've seen an awful lot of people drawing long-term disability when they're more than able to work. Not everyone on SSDI falls into this category, of course, but far too many do.)

As for the solution for funding SS, I'd guess the solution will be some combination of all three of these ideas. Raising the FRA to 68 across the board will adversely affect people in physical labor jobs. Human bodies do wear out over time. If it were raised, perhaps public information campaigns could strongly educate people: those who opt for retirement earlier than X age will need to draw from their savings/retirement accounts for their first few years before SS will kick in.

A thorny challenge, to be sure.

JCarol - The point is many people complain that we need to have an increase in the cap in which high earners no longer pay into SS or to get rid of it altogether. My statement is that the SS administration has a process to increase the cap and it is related to average wage index. I understand the inflation of those years, but I don't believe that is taken into the wage index equation. The wage index formula was put in place in 1972, before that Congress would set the limit.

Since the 1977 amendments were enacted, the contribution and benefit base has risen automatically with increases in average wages, largely addressing the historical goal of maintaining the relationship between preretirement earnings and benefit levels as wages rise. The goal was to reduce Social Security's projected funding shortfall, while creating a less regressive payroll tax structure, particularly in response to changing earnings distributions.

So I would think that instead of just taking the cap off like most people would want, the wage index may need to be tweaked once again to get more money flowing into SS. An example if you took the cap off: high wage earners are presently taxed at a 43% federal rate. Eliminating the cap on SS would raise the top rate into the 60% range, add state income tax, it could leave high earners paying 70% in taxes. Which was my point that SS begin to look like a welfare program and those high earners will find a way to take their money elsewhere.

One answer will not be the solution to strengthening SS, raising the retirement age and maybe a stronger payout distribution equation for high income earners might help as you raise the cap over a period of time. I believe you will also need an increase in the FICA tax at some point.

The option to raise the retirement age should be a last resort. As mentioned above, it severely impacts those who have physical labor jobs and would adversely affect both the lower and middle class workers who find themselves simply physically unable to do their jobs for those extra few years. My husband is in construction and very few of his co-workers make it past 65. In fact, they barely make it to then and only because they have no choice financially. As for office workers who are more likely to be able to work longer, they face different, but similarly challenging risks. While it is great that people are living longer, are healthier and able to work until a later age, the older population are much more at risk of being impacted by layoffs. Workers in their 50s and 60s are much more vulnerable when companies start laying off and are far less likely to find a comparable job, if any at all. An abled bodied person at the age of 59, who expects to work another 10 years or more, can find themselves unemployed and unemployable, and are thus forced to take menial jobs just to make it to 62 or into an early retirement. Raising the retirement age could easily mean that those forced into retirement earlier than expected, could end up in financial straits. Raising it would be beneficial mostly to those who are not dependent on SS, leaving the rest struggling. One option not mentioned is raising the mandatory distribution age of 70 1/2. That could provide some relief in conjunction with increasing the cap on taxable wages.

I have an idea that I don't think I have ever seen. I would propose a voluntary contribution program to be like a Part B to Social Security taxes. It would work somewhat like an IRA and all the monies plus interest would be paid to the heirs if death occurred before drawing it or during if the entire amount was not used up. This money could perhaps pay for the early years, age 62-67 then regular SS would kick in. This could be considered a bridge and would be used first to let regular SS grow. Or, it could be used to supplement SS. The way SS works now, the money you are taxed goes into one big pot and money is drawn out by those retiring. The actual money you contributed is never put into an account as YOUR money. This Part B proposal would go into an account with your name on it but could only be drawn out as SS monthly payments or lump sum to heirs upon death. You would have the option to draw it as a single stream of monthly income or combined with your SS check. It would be important for the government to give some kind of incentives to encourage people to save for the future. As it is now, people barely know what they will draw or the advantages of waiting. There needs to be more education on SS and Medicare at an earlier age.

Louise - I think you pretty much describe the IRA/Roth/401K structures as they currently exist, heirs and all, but they are not managed by government (which is generally a good thing, since they can't just use it for the Christmas party, paying off harassments lawsuits, new nukes, etc.). I've been saving for retirement since 23 (now 65 and retired 3 years), first in an IRA and later Roth and 401K, but you can only lead a horse to water. There is nothing to stop someone today from using their personal retirement investments to pay for living expenses before drawing SS, at least beyond the 59 1/2 age penalty threshold. I agree more education is needed, but I think that would be best started in middle school. Not retirement per say, but life long personal money management.

Peder, I agree it would be modeled somewhat like an IRA/401K but my vision would be that it would be untouchable until age 62 as a stream of income if a person chose to retire at that age or later. The thing with so many people is that they can't manage to put X amount of dollars away and open an IRA. Then not every company offers 401k's. It would be so easy to be deducted as a payroll deduction. I agree also that retirement education should start at a much younger age not just a couple of years before retirement. My Hub was a tough nut to crack when it came to convincing him to save money out of his paycheck into 401K. He liked seeing a big paycheck rather than a smaller one with the contribution. Once the statements starting coming he changed his mind drastically. I have always been a saver and at times a bit of a penny pincher. We have never gone without and we have taken over 20 Caribbean vacations among many other vacations. We have bought many new cars and just about anything you can imagine and a paid off house and cars. Luckily we had the best of two worlds. We had great paying jobs and were able to save and splurge too. Not everyone is as lucky. Even if such a program was offered by the government, a lot of people wouldn't participate and like you said, sometimes having government involved isn't necessarily a good thing.

Ric Edelman has put forth a plan that would make 70 the eligible age. You would be able to save more so you might be able to retire earlier than that anyway. You can find it if you search for edelmanfinancial

If Congress had to pay into Social Security AND had the same health Insurance and retirement plans/ options which We, the People have, they could solve problem QUICKLY. IF FOR EVERY DAY when there was not a balanced budget they lost pay, they'd hurriedly work TOGETHER TO SOLVE that problem, too. their disgusting behavior/back stabbing has got to stop. They are tearing our Nation apart much to the satisfaction of those who would see our country destroyed. United we stand, Divided we fall has more truth now than at any other time in our history.

Editor's comment: In our quest to avoid being the source of untrue information we have to point out that members of Congress have been paying into Social Security since 1984. Yes, they do have nice pensions, though. And we agree with you on Congress, can't they try to unite us instead of tearing us apart. Thanks Kate. http://www.factcheck.org/2007/12/members-of-congress-pay-social-security-taxes/

Since 2014 members have had to buy their health insurance through the same exchanges as ordinary citizens (although they don't have to pay for it). https://fas.org/sgp/crs/misc/R43194.pdf

The email link for the Trust for America was removed from my earlier post. If you search Trust for America, Ric Edelman you will find it. I am not associated with Ric Edelman in anyway. My husband and I don't even use his financial planning company. I just thought it was an interesting take on saving Social Security. Basically you put $7000 into a secure savings vehicle and let it accrue interest so that when you retire you have the same amount of Social Security per year as you do now. His plan says "The comparison between the T.R.U.S.T. Fund for America and the current Social Security system is striking. Assume an American enters the workforce at age 22, earns $44,954 (the national average income, according to the Bureau of Labor Statistics), receives a 3 percent annual pay increase, retires at age 70, and pays 12.4 percent in Social Security taxes annually. Even if you assume that Social Security taxes never rise, this worker will pay a total of $605,038 in Social Security taxes by age 70.7 but instead of putting in hundreds of thousands of dollars you put in much less."

I have a dental plan for my Hub and me. It is not insurance but they negotiate prices for procedures so you save money on most services. We have had it for two years and it's pretty good. We have the family plan and on top of the price they charge you something like a $20 processing fee. My dentist office comments each time we have service that it is a pretty good plan. Here is the information.

https://www.aetnadentaloffers.com/plans/aetna-dental-access?affid=111693

There are probably other companies out there but this one will give you and idea on what it offers.

Thanks for the tip, Louise!

Per readingfam's recent post -

"Assume an American enters the workforce at age 22, earns $44,954 (the national average income, according to the Bureau of Labor Statistics), receives a 3 percent annual pay increase..."

Is this stating the national average income for a 22 year old is $44,954? Then future predicted income is this, plus a 3% raise every year thereafter? This stat sounds off to me even if it is attributed to Bureau of Labor Statistics. I don't know of any AVERAGE 22 year old now making $44K a year (college grads included), and many of them are still trying to find jobs. I am 66 and have been working steadily until age 65 and can't say I received a 3% raise on average throughout my entire life. I started out at $4,617 per year at age 18 and retired at $75,900 per year - all working as a secretary with no college education.

I would do more checking into Trust for America, Ric Edelman before subscribing to his theory and advising any young folks I know.

Moderator Flo was kind enough to find a good source of earnings by age group. The average 22 year old in America makes about $27,300, but by age 26-34 is making around $40,000. Not sure if it makes any difference in Edelman's argument though. https://www.cnbc.com/amp/2017/08/24/how-much-americans-earn-at-every-age.html

BeckyN, I am not a financial adviser and this program doesn't even exist so I am not advising young people to participate. I just thought it was an interesting idea and posted it for the very reason that I was interested in others people's thoughts. You had some good comments and I appreciate your input. I live in a high income (high expense) area so I'm probably skewed in my knowledge of annual salaries. The major reason we are looking to retire someplace else. I wonder with some tweeking if some kind of idea like this could possibly work because as it is we contribute way more to social security then we actually get back if you take compounding interest into account.

One of the reasons I keep coming to this site is how helpful and polite those who comment tend to be which is much appreciated in this day and age. My hope is that commentors would steer clear of politicizing as much as possible.

Admin Comment: Bravo Susan! Thanks for reminding us. It is not helpful to use harsh language and get personal. Politics is a tough subject these days, please use restraint and respect. As long as the Comments remain objective we will keep them open on this topic, but if they stray we will close them off.

readingfam - I am in agreement with you that other scenarios should be considered in lieu of current contributions to the SS funds, however I do still favor a mandatory aspect because msny will not put away for retirement is left to their own resources.

We have moved a series of comments about Social Security here from another post:
From Louise:
Maimi, I do not agree with your feelings about cutting out 2nd and 3rd spouses married 10 years to one person. Why should those people be treated like second class citizens for marrying a person who has been married before? How would you feel if your mother or sister married a man who had been married before? Would you tell your mother, too bad, you don’t deserve to get Social Security on your husbands work record because he already had a first wife. What if your mother had children by this person, should those children also not receive benefits if their father should die before they are of age? That is ridiculous. Thank goodness, the people at Social Security have thought this out and apply the rules fair and square. There are plenty of government programs where money is spent unwisely. I am sure Social Security could find some places to fix too. I don’t think multiple marriages lasting 10 years, are a trending thing. Some women or men work and their Social Security benefit is higher than their ex’s so they collect on their own benefit anyway.

From LMB:
Louise, have no idea of what is happening out there but I would think if the spouse is that clever to know about the 10 year rule they are married to someone wealthy to begin with. Maybe the 10 should be 20 as more than likely any child will be grown by then. Might be a way to keep families intact longer.. Maybe there should be a law that a couple before divorcing know about the 10 year rule and SS. Then maybe only cases where there is extreme mental or physical abuse, people will think twice before divorcing. . If the ex spouse has a pension why should she be entitled to a portion of the ex spouses SS for only 10 years? I find it hard to believe that anyone in todays world is not working or has not worked. The rules for alimony have changed why not SS?

From Louise:
I do not agree with penalizing the second or third wife by denying them Social Security benefits. If this is the case, maybe no second or third marriages should be allowed either. There are plenty of other people who never married and spouses like me who are collecting on their own benefit. It all works out in the end. Not too many people marry 3 times and have been married 10 or more years each time. Furthermore, there is another Social Security benefit that allows a person to retire at age 62 and if they have young kids, the kids and the wife are entitled to a Social Security benefit too. The kids can collect until age 18 or 19. https://www.kitces.com/blog/why-social-security-dependent-benefits-for-a-child-can-make-it-a-good-deal-to-start-early-and-not-delay/ This benefit was a surprise to me too. I happen to know a guy who married for the second time to a younger woman and they had two kids. He retired and both his kids are on Social Security. I also know another woman who’s husband was killed in a car accident and left two children behind. They are collecting Social Security till age 18 or 19. So should the second wife, with children, not get Social Security for her children either?
I also have a friend who has been married 3 times but never managed to be married 10 years to any of her husbands so she reaps no rewards from her 3 marriages.
I have only been married once and for 44 years this year so I am not leaning towards people who have been married 2 or 3 times. It is just the right thing to do. How is the first wife any more entitled than the second or third wife? If they meet the guidelines the Social Security Administration sets forth and can provide documentation, so be it.
Any government program can be improved, let’s just hope they don’t destroy it trying to improve it.

From Maimi:
LMB, in some parts of the country, the fastest growing divorce rate is for people over 50 and many women stayed home, or at least took years off, to raise their children. That is the rationale for the SS. I still think SS is unfair to women or men who stayed home to raise a family.
In the case of subsequent spouses, they would know what they are getting into if they are marrying a divorced person who was married more than 10 years. I think this all needs to be looked at and made more feasible. When the SS rules were written, divorce was not as prevalent. Louise, I know plenty of men who are on their third marriages. It might be a class or regional phenomenon. SS can’t afford to support all that it currently does.

From Judy M:

Not in their defense, but just to clarify, members of Congress do not have a special or free health plan. They are required to use the Affordable Care Act on the DC exchange. The Federal Government subsidizes a portion of their premiums, just as is done for all federal employees. All federal employees (including members of Congress) who started their employment after June 1986 pay into Social Security and Medicare at the same rate as everyone else.
It might be explained better here:
http://www.factcheck.org/2015/01/congressional-pensions-update/
http://www.factcheck.org/2007/12/members-of-congress-pay-social-security-taxes/

From Maimi:
KHLM, most of the changes that you have listed are part of the Republican agenda. It is my understanding that President Trump signed and executive order that did make it possible to sell health insurance across state lines and also for groups to form associations and to allow plans more appropriate for the individuals. There are lots of changes ahead, I am sure. I only hope that Social Security is dealt with in a logical fashion instead of the hysteria that is created with half truths by the extremes of each party. I think another change that should be made is that only a first spouse who had been married for 10 years or more should be able to collect on a spouse’s account. I have a friend who married 3 times, each for a little over 10 years. His 3 wives now collect on half of his social security amount. That needs to change. No wonder the system is going broke. A subsequent spouse knows what he or she is getting into and only the first spouse should be eligible.

From LMB:
Many of the wealthy do not pay nor collect SS. And don’t some government employees fall into this category? Stop using SS for other programs except disability and then maybe for those who have paid into the system.

From Clyde:
I agree with KHEM that the cap on Social Security earned income should be removed to allow the wealthy to appropriately pay more in. This would solve all of the future SS funding issues. Medicare tax is not currently capped, and neither should be the SS tax.

From KHEM:
The first thing that ought to be done is to get Congress off their cradle-to-grave special for Congress only entitlement Cadillac plans and place them on regular Health Insurance or Medicare and Social Security like the rest of us. They get plans then only for the 4 yerars they stay in Congress, then get them term limits of 4 years to enforce it.
The next thing that needs to be realized by everyone is that the fat cats in the fat cat corporations get their mega-millions in bonuses, stock and stock options and also enjoy gold-plated company health plans until they leave this earth, and that is part of their permanent contract packages and if they have to leave, their corporate welfare golden parachutes.
There should not be a cap on the amount of social security and medicare based on a salary limit. It should be collected at the same rate for everybody whether they make $10000/year or 10 Billion a year, and that should also be charged against their stock income payments. Once they pay their fair share they can do as they like with the rest. It may go far in helping with the deficit, but only if Congress and the other leadership is prevented from raiding the funds for their own personal private projects that they can’t fund by taxation.
The other thing is why will they not let medicare and medicaid solicit bids for drugs and providers? And why is health insurance disallowed to be offered across state lines? And why are plans not allowed to be tailored to the needs of the individuals as in a cafeteria style? Why does a 75 year old man have to pay for birth services coverage? Why does a 75 year old woman have to pay for sex change services care? Offerings in medical care plans should be set up like a cafeteria style series of choices for coverage based on the individuals needs. I always thought that a continental style competition of health care companies and plans through out all states for all providers would centralize massive amounts of billing and paperwork and save a ton of expenses. Now each state has to have small individualized companies for each county or city and it is like a patchwork quilt. Just try taking your health care with you when you move!!!
Yet the obvious keeps getting trampled under the rugs in Congress.

Came across an interesting article in USA Today with Warren Buffett's thoughts on how to fix Social Security. We have a great deal of respect for his common sense approach to about everything. His solutions all sound pretty good to us. Buffett thinks the problem can be fixed - if we get started working on it now. Basically, his two main fixes would be to eliminate the earnings cap on the wealthiest individuals (like himself), and possibly raise the full retirement age. Those two alone might not solve the problem, but if combined with a modest increase in the employer and employee share, they just might work
https://www.usatoday.com/story/money/2018/05/22/heres-how-warren-buffett-thinks-we-should-fix-social-security/35174991/

I've advocated for this solution for some time (with the exception of raising the retirement age too much). By the way, the days of retiring at 65 with full benefits are long gone.

The biggest problem with raising the retirement age is that most employers don't want older workers who are paid more on the payroll. I got laid off as part of a RIF. Everyone on the list except 2 (so we couldn't sue them for age discrimination) had 20-30 years of experience with the company and was paid a high salary. Luckily I was 65, almost 66, my full retirement age. And luckily I had been putting 25% of my pay into a 401(k). Those who get laid off in their mid 50s and up are not so lucky. It is difficult if not impossible for them to find another comparable job.

Linda is right. There may be a lot of older persons who might consider working longer if they could keep a job without getting downsized in their mid to late 50's. I was laid off from two jobs in my 50's. Once when I was 51 and the second time when I was 58. It was hell trying to reinvent myself and after the second lay off, I never did find an acceptable job. Maybe if the government gave employers an incentive to keep older employees till age 65 or 66, employers might not be so quick to unload older people from their workforce.

I also had a job elimination last December 1. I will 64 in less than two weeks. I am trained as a nurse...RN and did a lot of Administrative work in my career. I could not find a full time job, but was offered a part time job ..three days per week with an oral surgeon in June. I applied for early S S in Feb and got my first check in March. Now I have to watch what I earn or my SS benefits will be reduced. I took early SS to preserve my savings. I needed the money and I have to buy my own health insurance. It is hard to live if I so not take SS and work, I feel penalized since I cannot get a full-time job. I think the income cap should be eliminated or raised...when one cannot find a job, as the health insurance is too high, and employers are allowed to just eliminate a job to get rid of a seasoned worker.Congress is doing precious little to help seniors continue working. I wanted to work to 70

Editor's Note: That is a tough situation Jennifer and, unfortunately, there are a lot of people in the same boat who haven't yet reached their Full Retirement Age. If you earn more than $17,040 ($45,360 in the year you reach your Full Retirement Age) and have filed for Social Security any money held back from your SS because you haven't reached your full retirement age will eventually come back to you. See the answers to our Social Security IQ Quiz (Q 7) for more.

As long as politicians can put their fingers on SS money there will never be a solution. I suggest that we start the process of phasing SS out. It was a nice experiment, but nothing more. SS will always be a failure as long as rich politicians can use it as a political football. The longer the politicians can keep people thinking they know how to handle your money, the longer folks can be manipulated to vote for them.
Companies have done away with pensions for retirement. The younger employees must be responsible and save for their retirement in a 401K. This is a fact.
Why should we keep letting the government take our money and an equal amount from our employer for a total of just over 14% of all the income you will ever earn? And then squander it away on things other than our retirement. Then to tell us there is not enough money to pay us back what they took by force.
Raising the money the government takes from us will not fix the problem. The not enough money in SS is not a new problem. It has been fixed numerous times over the last 60 years.
Fools may trust politicians, I do not
Let’s get government out of our pockets and take back the control of our money and be personally responsible for that 14% of the money we will earn. Don’t be scared of change.
Let’s free our grandkids from the useless burden of SS that is completely mismanaged by the government.

Definition of insanity. Keep doing the same thing and expect different results.

We need to identify those politicians and bombard them with letters. Does anyone know who the principal players are at this time in regard to social security in Congress or the Senate?

It may interest readers to know that when I spoke with a young representative from Social Security (after I had applied online for my benefits), this young man, right her in Washington, DC, told me incorrectly that social security was put in place by President Roosevelt so that older workers would give up their jobs to younger workers! Since my job had just been eliminated as an Administrator in a Church and I was not eligible for unemployment benefits, I was shocked by his reply to me. I really did not want to apply at 63.5 for SS benefits. I was really between a rock and a hard place and I felt this man was very uninformed. I am shocked at the deficits these young people have in their education, obviously they know very little about the history of Social Security and why it was put in place.

JL: In regard to the SSA younger’s ‘off-the-cuff’ to you … seems as if many of the Boomer’s here too haven’t remembered nor learned what happened to then-president Bush back in 2005 when he proposed privatizing a portion of their SSA. Oh yes.
Re receiving <$’s than paid into the fund:

https://www.politifact.com/truth-o-meter/article/2013/feb/01/medicare-and-social-security-what-you-paid-what-yo/

SS needs a complete rethink. SS was intended to be a financial floor, not a retirement. Learned the details from my now dead dad, who was alive when SS started.
To all that are young enough, be smart, do not count on the government and SS being ther for you. I hope to get my SS, but I have been planning for the politicians to somehow take it away from me or to reduce it. You need to come up with a better plan if possible. Hope is not a plan. If the politicians really felt our pain, they would have really worked on the SS issue. But what do they care, they mostly are multi-millionaires.
I suggest everyone figure out a plan to take care of yourselves, hoping millionaire politicians will suddenly care for us. They have no idea how you or I struggle everyday. I am not attacking there millions, I am attacking their campaign promises that are not kept, but they keep getting voted back into office by uninformed voters.
We the voters are at the root of the SS problem. We need somehow demand and get accountability. Not sure if that will ever happen with the current fake news environment.
If there is no way to get millionaire politicians to care about us, then the plan is to be prepared to take care of ourselves with good personal retirement planning.
Sad, but realistic
If someone has a better plan, I would sure love a ray of hope!
Thx