USA Today writes about the first baby boomers retiring next year at a rate of 365 an hour. The articles goes on to use terms for the fix that feed into the fears the current Administration is raising about the event. But is the crisis truly that bad? Yes it's true a fix is needed for Social Security, but if you look closely at the numbers used even in the USA Today you'll see that the fix is not that drastic. As long as we take it seriously and do something.
In the story USA Today states the fix would need to be a 16% increase in the existing payroll tax or a 13% cut in benefits. First let's look at that 16% in actual tax rates. The current tax rate for Social Security is 15.3%, which is 7.65% paid by the employee and 7.65% paid by the employer. Were the Congress to decide to fix the system solely by using tax increases then the increase would be 2.448% or 1.224% for the employer and the employee. That added would move the total tax collected to 17.748% (or 8.874% from one's paycheck). When a cut in benefits is discussed options always look at future promised benefits. The cut would not impact those currently collecting Social Security, but may include a number of different things such as increasing the age for retirement, reducing the COLA increase, or some other combination of benefit changes.
The fairest way to fix the problem would be a combination of tax increases and cuts in promised benefits. Let's say we cut responsibility for the fix in half - an 8% increase in tax rates or 1.224% shared equally between employer and employee: each paying 0.612% more in taxes. Would you be willing to pay that to secure Social Security for at least 75 years? A cut of 6.5% in promised future benefits would be necessary if the fix is to be shared by all.
I'm not even sure that this much of a fix is necessary. There are two key questions I've yet to see studied. One involves the dwindling size of the workforce. While the need for this fix is based on the dwindling size of the U.S. workforce, will that really happen? Those leading the charge to scare the public regularly quote the statistic that future Social Security benefits will be paid at the ratio of 2 to 1. Right now they are being paid at the ratio of 3 to 1. Can business survive in this country with that great a reduction in the workforce or will there be a greater need for immigrants to fill the holes in the workforce as baby boomers retire? Social Security taxes are taken out of the pay for immigrants.
The other big question is whether or not baby boomers will retire early in large numbers. With the rising cost of health care today, most can't even think about retiring until they can get Medicare. It's nearly impossible for a person over the age of 55 to get individual health insurance and even current retirees are finding they need to go back to work to get health insurance.
Both these factors could reduce the level of fix needed, but I've not seen any study that takes these two factors into account. Even if all the current assumptions are correct the Social Security Trust Fund will not run out of money until 2041 - that's 34 years from now. How many baby boomers will still be alive at that time?
Remember the Social Security Trust Fund was out of money in the early 1980s when a Social Security Commission was formed by former President Ronald Reagan and headed by Alan Greenspan. At that time Greenspan orchestrated changes in benefits and taxes to create the Trust Fund we have today. The fix did not go as far as it needed to do because an even a higher tax rate would not have been acceptable at that time, so we have a shortfall now that does need fixing. But I wish we'd stop using scare tactics and start having a serious discussion about the options to fix it.
Lita Epstein is the author of more than 20 books including the "Complete Idiot's Guide to Social Security."