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As Social Security turns 80, it needs some help

Social Security, finance, money

By Sondra L Shapiro

August 14, 1935, marked the signing of the Social Security Act. On Nov. 4, 1939, Ida May Fuller, 65, filed the first retirement claim and received a check for $22.54.

As the entitlement ushers in its 80th birthday it has offered a financial life raft to millions of retirees like Fuller. Yet it is showing its age and needs help if it is to sustain future generations.

The most recent trustee report revealed the retirement trust fund should run dry by 2034 and the program would take in only enough payroll taxes to pay 75 percent of benefits.

The Social Security trust fund, which pays the benefit, has two components: the retirement fund (OASI) and the Disability Insurance Trust Fund (SSDI).

Sondra ShapiroThe struggling disability program is slated to run dry in 2016. Through the years, 11 times to be exact, Congress has allocated the funneling of funds to the SSDI under both Democratic and Republican administrations, the last time being in 1994.

During the opening of the 114th Congress in January, House Republicans put Social Security right back front and center by halting the practice of allocating additional funds into the struggling disability program. The action could result in a 20 percent cut in disability benefits by late next year for the approximately 9 million beneficiaries.

The move might be interpreted as a tactic to ultimately make cuts to the retirement and disability programs. Indeed, the ruling actually stated that it is blocking the cash transfusion unless it goes along with a larger plan to improve Social Security solvency, by either trimming benefits or raising taxes.

How the Program Works

Social Security is a pay-as-you-go system — today’s workers and employers pay for current retirees through a 12.4 percent combined tax on wages up to $118,500.

Beneficiaries usually get more in benefits than they and their employers have paid into the system.

While the program has more than $2.7 trillion in reserves, the retirement portion has been paying out more in benefits than it collects in payroll taxes since 2010. The trust fund should run dry by 2034 when the program would take in only enough payroll taxes to pay 75 percent of benefits.

Compared to 1935, when the Social Security Act was passed, people are living ever longer lives, so they will be collecting benefits for more years.

The Urban Institute reported an average-earning male who reached age 65 in 1960 received $6.39 in Social Security benefits for every dollar he paid in Social Security taxes.

Workers, who reached age 65 in 2010, receive 92 cents for every dollar paid in taxes, and workers who reach age 65 in 2030 will receive only 84 cents for every dollar in payroll tax contributions.

Compounding the issue, the birth rate has been declining since 1964; the ratio of workers supporting each retiree is shrinking.

According to the Social Security Administration, in 1940 there were 159 workers for every four retirees. As of 2010, that ratio has shrunk to two workers supporting nine retirees.

All of this information may lead to the conclusion that Social Security is unsustainable; at least many in Congress would want you to believe that.

A Political Tactic

The disability program, which has been paying out more than it collects since 2005, may provide the chink in the armor Republicans could exploit. Consider the recent words by the Social Security trustees:

“While legislation is needed to address all of Social Security’s financial imbalances, the need has become most urgent with respect to the program’s disability insurance component. Lawmakers need to act soon to avoid automatic reductions in payments …”

Such words make a case to redirect funds into the program. So, why would Congress refuse to do so? A rationale, offered by the TPM electronic news site, suggests that the Republican ruling to halt the transfer of funds may be political. Congress could allow for small infusions into the program with a payback deadline that would coincide with the next election. “By setting up a series of forcing events, the argument goes, Republicans would be able to create an ongoing crisis atmosphere around Social Security that would create a pretext for dramatic changes to the 80-year-old program,” TPM reported.

In a lot of ways this ploy makes sense since one must tread easy when discussing tinkering with the very popular entitlement, hence subtle moves leading to the goal of making structural changes to the program — presuming Republicans take the White House.

In the past, Democratic and Republican administrations have assigned task forces to look into ways of fixing the beleaguered Social Security program. Each time, these groups have either come up short or made suggestions — such as privatization — that have proven to be unworkable.

In 2011, the president introduced the controversial chained CPI proposal that would have altered the inflation formula used to determine cost-of-living increases for retirees, trimming the average benefit by roughly $30 a month. The non-partisan Congressional Budget Office gave the example of a $216 billion savings between fiscal years 2014 and 2023.

Some Tinkering 

When you consider Social Security has cut the poverty level in half among seniors since FDR signed the act in 1935, the future of the middle class depends on its solvency. A bit of tinkering could solve its problems long term. There is no need to change the basic structure.

Why not consider raising the retirement age for collecting Social Security faster — the age for full benefits has been rising gradually to 67 by 2017.

Ratchet up the age for collecting benefits early, since it has not increased at all.

Or lift the cap on how much income is subjected to the Social Security tax. It seems illogical that a person making more than the cap pays no more in taxes.

FDR could never have imagined the vast numbers we baby boomers would represent and the impact we would have on the program. He never could have predicted that people would live so much longer and healthier lives. Yet, his original premise to keep retirees out of poverty still exists.

Carolyn Colvin.JPEG-

Colvin

“Social Security offers hope and protection for millions of people and some of the most vulnerable members of the American public,” said Acting Commissioner Carolyn W. Colvin, during the announcement of activities planned for Social Security’s 80th birthday. “This was President Franklin Roosevelt’s vision in 1935, and the vision has never been clearer, nor has the work of our agency ever been more important than it is today.”

According to the Center on Budget and Policy Priorities, almost 90 percent of people aged 65 and older receive some of their family income from Social Security. Without those benefits, 44.4 percent of older Americans would have incomes below the official poverty line.

Just consider Ida May Fuller, who by the time she died at age 100 in 1975 had collected $22,888.92 in benefits. She once told a reporter that the money, “come pretty near paying for my expenses.”

In the words of Commissioner Colvin, “There is nothing more rewarding than making a difference in the lives of others, and with our collective commitment, there is no limit to what we can achieve.” Congress should heed those words. Solutions are not that difficult when you put aside political opportunism.

Sondra Shapiro is the publisher of Fifty Plus Life. She can be reached at sshapiro@thefiftypluslife.com. Read more at thefiftypluslife.com. Follow her at www.twitter.com/shapiro50plus.

UnknownTo engage the public, Social Security launched a commemorative 80th anniversary website, where individuals can learn more about the agency’s legacy and the importance of the Social Security program. The website, www.socialsecurity.gov/80thanniversary can be used by the public to submit stories that show how Social Security has benefited them or their families. 

 

 

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