Retirement: A ‘Six Figure Limit’ to save Social Security

We’ve recently checked off another year of inaction on the sinking ship known as Social Security, said Brenton Smith in MarketWatch. New projections from the Congressional Budget Office reveal that the trust fund will now run out of money by 2032, “resulting in benefit cuts of 22.5% in 2033.” As they’ve done for the past 40 years, our lawmakers are likely to continue to react to this slow-moving disaster “with the rhetoric of empty politics” and no real solutions. Voters, too, have consistently “responded with systemic denial.” Seniors continue to “recycle the tired cliché of indifference, ‘We paid for our benefits,’” and resist any effort to protect future generations. A 2% increase in the payroll tax in 2005 would have extended the program for another 75 years. Now the cost to achieve the same result is 4%. “If fixing Social Security were easy, it would already be done.” But hard choices must be made.

Here’s one way to “help restore sanity to a program millions of Americans depend on,” said The Washington Post in an editorial. “There’s no reason” Social Security should be sending $100,000 checks to wealthy Americans. But the way the program is constituted, couples who have continually met the taxable maximum on their earnings can become eligible for the maximum benefit, upward of $101,000. The rising costs of living will only “keep boosting payments” as time goes on. A “Six Figure Limit,” as proposed recently by the Committee for a Responsible Federal Budget, “is the right idea.” A $100,000 cap would erase “one-quarter of the shortfalls and save $190 billion over the next decade,” said Shawn Tully in Fortune. But that would only delay insolvency by seven years. “It will take additional modest, and also more radical, fixes to bridge the yawning gaps.”

“OK, now take a breath,” said Pat Regnier in Bloomberg. Solving the shortfall may come down to a “nail-biter,” but few experts expect Congress to allow dramatic cuts to this “wildly popular” program. If the Six Figure Limit isn’t enough, other solutions “are simple in terms of math if not politics.” Lawmakers can make up for the shortfall with taxes, such as by raising the amount of income subject to a payroll tax (currently $184,500). Or they can reduce benefits “by raising the age for full retirement” again, or “changing the formulas for calculating benefits or cost-of-living adjustments.” But those nearing retirement should not panic. Even if the trust fund runs out in 2032, “major benefit reductions likely would be gradual and not kick in for at least a decade.” Social Security is going to last, but “having an aging society is expensive no matter what, and it’s going to leave a mark somewhere in the coming decades.”

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