There is a financing shortfall when it comes to the social security program. Social Security’s tax revenue and the trust fund reserves have promised to offer sufficient cash to pay out all benefits until the year 2033. After that, the trust fund will be exhausted and will have the ability only to pay 77 percent of the benefits scheduled. The good news is that there are several ways of correcting the shortfall in funding. In this article, you will learn some potential social security fixes that may help you in the future.
1. Reduce benefits.
In the year 2010, if 3 percent of the social security payouts were reduced for the new beneficiaries, 18 percent of the current shortfall would be removed. Amazingly, reducing cutting a benefit by 5 percent reduces the balance by 30 percent. Therefore, the first solution is reducing the benefits by a reasonable percentage.
2. Raise the retirement age.
At the moment, the social security eligibility age for a person to get unreduced benefits is between 65 to 67 years depending on the year they were born. Once someone claims their benefits between the ages of 62 years to the full retirement age, then the payouts have to be reduced. Proposals to increase the retirement age, which is 67 years, to either 68 or 70 years helps people to manage the life expectancy. However, selecting either of the options removes an amount that is less than 30 percent of the deficit.
3. Boost future contributions.
At the moment, taxes do not need to be increased because there is enough money in the Social Security fund to clear all the benefits that are on schedule. The amount of money people pay for their taxes could increase from 6.2 to 7.2 percent for employers and employees in the next four years. In the year 2052, the same tax bite could be improved by 8.2 percent, meaning the shortfall will be eliminated. Another workable option would be to raise taxes gradually by 0.05 percent for the next 20 years. By doing that, the Social Security deficit can be reduced to 69 percent.
4. Including more workers.
The Social Security system covers almost all Americans. Close to 94 percent of workers pay taxes to the Government. Some Americans who are not included in the Social security taxes include federal workers, who got their employment before 1984 and college students who work in learning institutions. However, including more workers has to be in conjunction with other factors. Extending the coverage to the people who do not participate brings down the Social Security shortfall by 9 percent. Any progress is good progress.
5. Diversify investments.
A brilliant idea would be investing some of the Social Security trust funds in equities so that the returns gained can help in retaining the Social Security Program. For example, if 15 percent of the trust fund is used to buy equities, the balance would reduce by 14 percent, when 9.4 percent of the return rate is reached. On the other hand, if the 40 percent of the total trust fund is to be invested in stock market earning 9.4 percent annually, at least the deficit could be minimized by a third. However, spending the money in the trust fund might be a risky affair especially when there is a downturn in the country’s economy.
6. Lower spousal benefits.
For unemployed and low-income earners, Social Security pays a benefit of 50 percent of the spouse earning more money. By the year 2026, a proposal of lowering spousal benefits by 33 percent should be implemented. If such a change is executed, the long-term deficit may be reduced by 6 percent. Americans should learn how to survive old age using their lifetime savings, more like the UK’s Individual Savings Accounts where someone is given the chance to save money for retirement. Nowadays, the fact that women are entitled to social security benefits based on their work records has made lowering spousal benefits have less impact.
7. The working years should be averaged.
Social security checks are usually based on the employees 35 years of working which earned them the highest payslips. If you have not worked for 35 years, zeros are updated on your records. If the averaging period is increased to 38 or 40 years, the deficit will reduce by 14 and 23 percent respectively.
8. Tax appropriately.
When the social security requires more money, they should enforce their tax collection methods and become stricter. Additionally, the unpaid social security taxes should be claimed with more efforts.
9. Legacy tax.
The first people who retired in the past never used to pay their social security taxes all through their employment life. It is one of the reasons why social security is undergoing a shortfall. Some of the solutions that have been suggested to try and cover up this legacy cost include payment of a 3 percent legacy tax if you earn more than the current tax limit of $106,800. Incorporating the legacy tax will ensure that the social security shortfall is reduced by a third. Another great idea would be to channel estate tax revenue to the social security trust fund.
10. The cost-of-living adjustment has to be changed.
Social security benefits have to be adjusted annually in order to be in check with the rate of inflation in the country. According to the chained CPI, you could slowly measure the inflation of the country. Getting the correct cost of living adjustments per year is done using a slow measure of inflation ensures that the social security deficit reduces by 20 percent.
11. Modify the social security tax cap.
Employees who earn up to $106,800 pay directly into the social security system. If all the earned income above $106,800 annually would be used as social security contributions, the social security deficit would be over. Therefore, the Government should focus on collecting taxes from the high-earning employees and use the money like social security contributions.
All hope is not lost. Once someone gets to a certain age, it is essential for them to be taken care of by the Government. If you have spent more than 35 years of your life working, when you get old you need to sit back and relax. Therefore, the points discussed in this article can ensure that the social security issue is fixed for good.