Everyone is concerned that social security is going to run out of money. While everyone is talking about what will happen, no one is ready to start addressing the problem. in an October 2022 article, CNBC quotes a report showing that social security benefits will be cut by close to 30% in 2034 if nothing is done. Solutions exist that will minimize or prevent the reduction of social security benefits, but only if we act quickly.
So the Superbowl is over and march Madness is ready to begin, everyone has their idea of how to win the season. The same applies with the changes to social security. I got A’s in both my micro economics and macroeconomics courses, so that gives me the right to be what I am going to call an “Armchair Legislator” .
The question is where do we find more money for social security? For that to happen we have to decrease what we are paying out and / or increase what is coming in.
Decreasing the Social Security outflow
In 1983, the full retirement age for social security was raised to 67 for those born after 1960. With individuals living longer today, this can be done again. However, the age that social security can be started needs to be raised to 65 with full retirement age being increased to 70 and the max retirement benefit being available at 73. Following a similar plan as 1983, the age is increased effective 2025 for those born 1981 or later, with 3 months being added across the board for each year deferring over 30% of the new enrollees 1 year or more. This will slow down the amount of funds needed to be paid out and could possibly make up for 10% or more of the shortage.
Increase income Caps for when Social Security collected
Many are unaware that social security taxes only apply to a certain income level. One way to increase the amount of money coming into social security is to increase the income level taxed. These levels increase annually with inflation. However by increasing these limits from the 2023 income level of $160,200 to $250,000 to $300,000 would see more money brought into social security, further extending the time until cuts have to be made. In addition, while people are living longer, there was an overall decline in birth rates starting in the 1980s, reducing the number of individuals entering into social security. This one factor could make up for 50% or more of the shortage, subject to the changes made.
Increase the Social Security Tax
While unpopular, another way to fund social security is to raise the tax rate. Currently the rate is 6.2% paid by both the employer and the employee, 12.4% if self employed. Increasing this tax to 13% could make up as much as 20% of the shortage in social security.
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