THE PROBLEM:
We have more people retiring with fewer workers to support them. The current Normal Retirement Age is 65, moving up to 67. Early retirement remains 62 (ages referring to SS eligibility). A much smaller percentage of the population was on SS in 1940 than today. Unless something changes, we simply cannot afford to pay SS benefits in the future as we have in the past. And keep in mind, officially, SS benefits are a Supplement, and are not supposed to be your sole source of retirement income. SS has enabled people to retire much earlier than they used to, but at a cost to the federal and state budgets.
From this link we get:
"In the 1930s average life expectancy in the U.S. was 57 years. Setting the age for retirement benefits at 65 years meant the majority of people would die before becoming eligible to collect. Today, the average life expectancy is 76 years. By the middle of this century, the average American will live to be 82.
A system that was financially feasible when only a minority survived to collect benefits is infeasible when a majority is expected to live a decade or more collecting benefits.
Because Social Security cannot continue as currently structured, we must choose which type of change is most palatable. The approaches fit into the following categories: (1) personal accounts, (2) means testing, (3) increasing the retirement age, (4) increasing population growth, or (5) raising taxes."
And from the CBO we get:
"- Once the baby-boom generation retires, the portion of the nation's output that the federal government will spend on Social Security will increase by more than 50 percent--from 4.2 percent of gross domestic product (GDP) in fiscal year 2001 to an estimated 6.5 percent in 2030.
- Addressing the growing cost of Social Security would not by itself relieve the economic and budgetary pressure caused by the aging of the U.S. population. The rapidly escalating costs of the government's health care programs are a major source of that pressure. CBO projects that federal spending for Social Security, Medicare, and Medicaid combined will account for roughly 15 percent of GDP in 2030--double the current share.
- Although policymakers have many goals, if they want to limit the growth of spending on the elderly as a share of GDP, they have only two options: slow the growth of total payments to the elderly or increase the growth of the economy."
And:
"[Medicare and Medicaid] together with Social Security, already [in 2001] account for nearly half of all federal spending, excluding interest payments on federal debt. If the programs are not changed, by 2030 they could consume two-thirds of the federal budget."
Also, see the life expectancy table here.
So- What should we do?
1. Let people invest some or all of their own money withing the SS system, and live with the results, good or bad. Keep in mind the current sad state of the stock market and economy.
2. Institute "means testing," so while everybody pays in to the system, only those officially declared "in need" will receive benefits, and those benefits will be on a sliding scale. From each according to their abilities, to each according to their needs. As determined by the government. Keep in mind, this is done in parts of Europe (or so I hear) with the net result very little is saved for retirement, because people feel it's better to enjoy it now and let the government take care of you later. Why save when it will mean you won't get benefits later, and end up with less overall?
3. Increase the Normal Retirement Age, and perhaps the early retirement age as well, to where the ratio of workers to retirees is closer to what it was in 1940 or some other date when SS was viewed as more affordable to the nation. Adjust it periodically and give folks say, a 4 or 5 year advance notice as to when they can count on being eligible for SS retirement benefits. This might mean retirement at 70 or 72, up from 67, for folks born after some point in the 1950s.
4. Increase the young end of the population thru birth incentives and significantly increased immigration of young people. Might be a little late for the former, have to concentrate on the latter and ensure they're almost all productive workers.
5. Increase taxes significantly, in an attempt to just cover the bill. That means your FICA/OASDI will then go up, which is a %age of income. Harder on lower income people.
6. Tax the rich more and make them pay. Might encourage more tax evasion, as it has in Europe.
7. Some combination of the above.
We have more people retiring with fewer workers to support them. The current Normal Retirement Age is 65, moving up to 67. Early retirement remains 62 (ages referring to SS eligibility). A much smaller percentage of the population was on SS in 1940 than today. Unless something changes, we simply cannot afford to pay SS benefits in the future as we have in the past. And keep in mind, officially, SS benefits are a Supplement, and are not supposed to be your sole source of retirement income. SS has enabled people to retire much earlier than they used to, but at a cost to the federal and state budgets.
From this link we get:
"In the 1930s average life expectancy in the U.S. was 57 years. Setting the age for retirement benefits at 65 years meant the majority of people would die before becoming eligible to collect. Today, the average life expectancy is 76 years. By the middle of this century, the average American will live to be 82.
A system that was financially feasible when only a minority survived to collect benefits is infeasible when a majority is expected to live a decade or more collecting benefits.
Because Social Security cannot continue as currently structured, we must choose which type of change is most palatable. The approaches fit into the following categories: (1) personal accounts, (2) means testing, (3) increasing the retirement age, (4) increasing population growth, or (5) raising taxes."
And from the CBO we get:
"- Once the baby-boom generation retires, the portion of the nation's output that the federal government will spend on Social Security will increase by more than 50 percent--from 4.2 percent of gross domestic product (GDP) in fiscal year 2001 to an estimated 6.5 percent in 2030.
- Addressing the growing cost of Social Security would not by itself relieve the economic and budgetary pressure caused by the aging of the U.S. population. The rapidly escalating costs of the government's health care programs are a major source of that pressure. CBO projects that federal spending for Social Security, Medicare, and Medicaid combined will account for roughly 15 percent of GDP in 2030--double the current share.
- Although policymakers have many goals, if they want to limit the growth of spending on the elderly as a share of GDP, they have only two options: slow the growth of total payments to the elderly or increase the growth of the economy."
And:
"[Medicare and Medicaid] together with Social Security, already [in 2001] account for nearly half of all federal spending, excluding interest payments on federal debt. If the programs are not changed, by 2030 they could consume two-thirds of the federal budget."
Also, see the life expectancy table here.
So- What should we do?
1. Let people invest some or all of their own money withing the SS system, and live with the results, good or bad. Keep in mind the current sad state of the stock market and economy.
2. Institute "means testing," so while everybody pays in to the system, only those officially declared "in need" will receive benefits, and those benefits will be on a sliding scale. From each according to their abilities, to each according to their needs. As determined by the government. Keep in mind, this is done in parts of Europe (or so I hear) with the net result very little is saved for retirement, because people feel it's better to enjoy it now and let the government take care of you later. Why save when it will mean you won't get benefits later, and end up with less overall?
3. Increase the Normal Retirement Age, and perhaps the early retirement age as well, to where the ratio of workers to retirees is closer to what it was in 1940 or some other date when SS was viewed as more affordable to the nation. Adjust it periodically and give folks say, a 4 or 5 year advance notice as to when they can count on being eligible for SS retirement benefits. This might mean retirement at 70 or 72, up from 67, for folks born after some point in the 1950s.
4. Increase the young end of the population thru birth incentives and significantly increased immigration of young people. Might be a little late for the former, have to concentrate on the latter and ensure they're almost all productive workers.
5. Increase taxes significantly, in an attempt to just cover the bill. That means your FICA/OASDI will then go up, which is a %age of income. Harder on lower income people.
6. Tax the rich more and make them pay. Might encourage more tax evasion, as it has in Europe.
7. Some combination of the above.
