|
|
MAKING CENTS OUT OF THE NEWS
Blog #35
(September 10th, 2009)
EMBRACING CHANGES IN SOCIAL SECURITY
By Tom McAllister, CFP®
Baby Boomers and their parents differ fundamentally in financial attitudes, according to several articles I read recently. Most of my clients and blog readers are either “Depression babies” now past age sixty five, or Boomers in their 50’s and 60’s. One thing I’ve found for sure – the financial meltdown has been cause for consternation among both groups. Many who have already retired have had to “tighten their belts”, adopting a lowered standard of living. A few have returned to work, mostly part-time, to enable a continued comfortable lifestyle. Let me try to “make cents” out of the news in this area.
As most of us are aware, the Social Security system will, within a relative short period of years, be approaching the point at which the system is paying out more dollars than are coming in from payroll withholding. In fact, this break-even point is expected to be reached before the year 2017. Despite pundits repeating the terms “broke” and “broken”, this means only that the trust fund, invested in U.S. government bonds, will switch to negative cash flow. Eventually, the fund will be entirely drained, unless Congress acts to change things.
Change to Social Security? That has been the “third rail” in politics! Anyone trying to effect change has risked political death at the hands of their opponents. Yet change is inevitable. This can happen, I believe, only with the kind of bipartisan effort that appears highly unlikely in the present Congress.
Here are my personal ideas of how to “fix” Social Security:
COL Adjustments:
Cost of living adjustments must be switched from being based on wage increases to being based on actual cost of living increase. Historically, there has been a 1% difference between the two. This change alone would solve much of the negative cash flow problem, yet most recipients would hardly notice the difference.
Age For Full Benefits:
The age of eligibility for full benefits must be adjusted from the current age 67 to 70. (Age 65 was chosen in 1937 as the minimum age to receive full benefits. Back then, a majority of U.S. citizens died before reaching that age!)
Taxation:
A greater portion of the benefits for middle income recipients should be subject to income tax. The Social Security program benefits are already skewed heavily in favor of lower income recipients, and this will not and should not change.
Partial Privatization of Accounts:
Allowing participants to control how a portion of their accounts are invested, in my view, would, over the long haul, solve all of Social Security’s problems. For political reasons, this will not pass in this Congress.
None of these factors would affect the Medicare crisis. Medicare IS broke! Until the national health care debate is resolved, this problem will not be addressed.
The bottom line on Social Security – all my readers will likely receive their anticipated Social Security benefits. On the other hand, I encourage those still employed to remain so as long as is practical, all the while warning grandchildren that without significant changes, they will not be so fortunate.
Change? Either we accept and even embrace change, or - change will overcome us!
|
| |
| |
______________________________________________
| |
Click To Print This BLOG
