Did you know that when Social Security was first proposed, with a retirement age of 65, that the average life expectancy was only 59? As a result there were far more millions of Americans paying into it than the few tens of thousands of Americans getting money from it, and correspondingly the payroll tax to cover it was very minimal.
Furthermore, the original intention of Social Security was not to be the primary or sole source of income for retired Americans….it was to keep the elderly from being homeless and out of poverty as a financial safety net in their golden years.
Yet as we know, over time, especially as private sector pensions have disappeared and Americans have proven themselves to be poor savers, many Americans have come to rely on Social Security to live on when they retire.
As a result, we have 2 choices. Either we can accept that is the way it is going to be and live with it, or we can try to swim uphill and get back to the original intent of the program as a safety net to keep senior citizens out of poverty and homelessness.
We have known since at least the 1980’s that the Social Security Administration Trust Fund was going to be facing some majorly upside down numbers as the Baby Boomer generation retired over the next couple of decades, yet due to the two parties dragging their heels on dealing with the problem, it took until recent years for the retirement age to begin to increase. Thank goodness that change finally got made. Because other changes were not made decades ago, retirement age definitely has to stay at 70 for the foreseeable next few decades until the numbers correct themselves.
We also have got to start means testing. Remember my earlier discussion about patriotic duty? Does it suck if someone is a hard worker and pays into Social Security their entire working career but then when it comes time to retire they aren’t allowed to take any money out of the program or are delayed for years from taking money out of the program because they are deemed too wealthy to need it? Definitely does suck to some degree. But remember…..taxes are the price of a civilized society.
We simply have to get rid of the mindset of things being owed to us, and one of them is getting back out what we paid in to Social Security, Medicare, and Medicaid. All those years that the hard worker described above was paying into Social Security, they were benefitting countless senior citizens and they should be proud of their service to their fellow citizens, because if they weren’t paying in all those years, and some of those senior citizens couldn’t make ends meet, society as a whole would have had a lot higher costs to foot the bill for in terms of indigent nursing home care, unpaid ER bills resulting in higher prices for the rest of us, etc.
If we do means testing on Social Security, and institute a rule that when you apply for Social Security benefits you have to undergo a full financial review of your assets, liabilities, and life expectancy, to determine if you really will need the benefits you are filing for, then suddenly the long term health of the Social Security Trust Fund will be a lot better, because many people are getting Social Security that do not really need it at the end of the day.
They are simply filing because it is what you do when you hit the magic number without further thought as to the overall system. And I don’t blame them. It isn’t done maliciously. It’s just that we don’t as a society take the time to think, “do I really need this benefit if I have my 401k and other investments”, or “can I delay taking benefits for a few years and help the Trust Fund out by delaying taking benefits”?
Individual Savings Accounts
On a related note, I definitely think we need to start encouraging Americans to start saving early, often, and as much as we can get them to. Other nations’ citizens routinely save 15-20% of their incomes, but Americans we hover around 1% if we are lucky, and many Americans get through the bulk of their lives with a negative savings rate by going into debt to pay for their kids’ college, their house, cars, vacations, etc.
Ideally, kind of like how we each get a Social Security card when we are born, it would be great if we were automatically given a bank account associated with that, and any time we wanted to, we could deposit money into it throughout our childhoods, and then as adults we could have portions of our paychecks deposited there post-tax, and not be able to withdraw funds from it until we retire at 70. That would greatly cut down on the dependency on Social Security for many Americans and help them become better savers.
Make no mistake, everyone would still have to also pay into Social Security, it is just that when it comes to taking money out of it, hopefully those who do a good job with their ISA won’t need to call on Social Security benefits or won’t need as much, or can delay taking payments from Social Security until they are in their 80’s, etc.
The bottom line is we have to get creative so that the Trust Fund stays solvent AND so that working Americans do not have increasingly higher and higher payroll taxes to keep it solvent.
Perry Waag 