Fixing Social Security is Simple — So Simple that Congress Won’t Do It
According to a new report, it was widely distributed that social security will run out of funds a year earlier — in 2034; and will have to reduce payments to about 91% of the current entitlement. There are more than a dozen reasons for this and it’s not a new problem. We’ve heard this for the past three or more decades with Congress without the will to fix this problem.
Why is this important? When I was young, workers had confidence in a retirement program from their employer that would be the primary source of income in the golden years with social security as a safety net for vulnerable seniors, the disabled, and everyday citizens. When 401Ks hit the scene; the world quickly shifted the saving for retirement to the employee with varying levels of matching from the employer. There are exceptions, mostly State and Federal employees and the military.
It’s fair to say that some cannot put away even 1% into a company 401K. Another complication is that there is a limit on how much can be put aside for retirement which is complicated as employees rise in position and salary. The result was that rather than having a system which remained the primary source for retirees; social security became more prominent as the primary source for the majority of those going into retirement with the realization that many seniors continue to work to keep their head above water. What is fair to say is that those above $142,800 can pay more into the system that benefits their grandmother and great grandmother.
There is a solution. It’s an easy solution.
Currently, employees and employers each pay 6.2% into social security. These contributions are capped when one’s income is $142,800. Everyone pays the medicare tax on every W-2 dollar made; but not social security. The rationale years ago was that if someone making $200,000; $400,000 or more would then take more out when it is time to collect social security. That rationale is absurd. All the Congress needs to do is to cap the benefit at the same level it is today.
The math is simple. The solution is simple.
In layman’s terms; the law would simply say: 100% of W-2 income will contribute to the social security fund at the rate of 6.2% paid by both the employer and employee. This aligns to the same withholding as is currently set aside for medicare of 1.45%. Recipients of social security at the age for retirement or disability compensation will remain at a benchmark steady state from 2021 adjusted for the same inflation rate as deterred by the Social Security Administration.
This would provide solvency to social security well beyond the current date of 2034. Further, it would not provide those making more than $142,800 (2021 wages) with a larger payout than the maximum benchmarked to 2021.
An alternative would be that beyond the $142,800 level, the withholding for social security could even drop to 5% each for employer and employee and still be enough to provide for the long term solvency of this program.
We need solutions to this issue. We need those solutions now. It’s not a political issue; it’s taking care of those going into their golden years and the disabled.