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One of the most pervasive myths in society today is that Social Security is doomed. According to a Gallup survey, more than half of Americans in 2015 didn’t think they would ever collect Social Security benefits. For individuals under 30 years old, that percentage jumped to 64 percent. At the same time, Social Security is far and away the most popular government program, and 87 percent of Americans believe that Social Security should be preserved.
Today, Social Security provides $800 billion in benefits to 60 million retirees, disabled persons, and surviving spouses and children. If that sounds like a lot of money, consider that the benefits are actually quite modest. The average annual benefit is about $15,000.
Alarmists say that Social Security is going broke and that it will take the U.S. government down with it, but that is not at all accurate. First, it is important to understand that Social Security benefits are not paid with general tax revenues, so they have no impact on the U.S. government’s budget or the national debt, even though some politicians would have you believe otherwise. The mammoth U.S. debt and funding for Social Security are mutually exclusive. Social Security benefits are paid from a separate account funded by those FICA deductions that have been coming out of your paycheck for all your working years. In fact, Social Security has two funds—one to pay old-age retirement benefits and the other to pay disability benefits. Currently, employers and their workers each pay a total of 6.2 % of their wages to the Social Security system: 0.9 % is allocated to Disability Insurance (DI) and 5.3 percent to Old-Age and Survivors Insurance (OASI).
The looming Social Security “crisis” is really just a potential reduction in benefits. The retirement of Baby Boomers means that there are more people drawing benefits and fewer workers contributing to the fund, which is projected to create a budgetary shortfall. The Social Security Administration reports that “currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits. This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman.” If Congress does nothing, it does not mean that no benefits will be paid out; it means that the benefit amount will be reduced by 25%.
But Congress can do something or, more accurately, several somethings. With only some minor tweaks, Social Security as we know it can be preserved. One simple fix is to increase Social Security taxes on the wealthy. Under the current system, payroll taxes are not collected on wages over $132,900. Knowledgeable estimates say that if the wage cap were lifted this would make up more than 80% of the funds needed to maintain current Social Security benefits. A modest increase in the contribution rate could make up the difference.
Another option is to simply ignore the reduction in the trust fund. The government could make up the shortfall from tax revenues and continue paying out all the promised Social Security benefits, if it wants to. Some observers argue that as one of the wealthiest countries in the world, America can afford to keep its promises to our seniors and disabled persons.
When you hear the “Chicken Little” talk about the sky falling in on Social Security, understand that we do not have an economic crisis facing us—just a political one. We have options; we just need leaders who have the courage to make the right decisions.