He also points out that since current contributions are used to pay for existing retirees’ benefi ts, diverting money to private accounts would decrease the vailable funds in the short-term.
Is reducing benefit amounts fair?
Another possible solution to the social security shortfall would be to reduce the benefits paid to retired people. Benefi t payments are presently determined based on wage levels. Some lawmakers advocate that benefi ts should be based on the consumer price index.
“Wages tend to grow faster than consumer prices, so [this proposed reform] would reduce the projected deficit rather quickly,” Ochsenschlager says. “If we want people to be whole, in terms of what their social security benefi ts will permit them to buy, then doesn’t it make sense to base it on the consumer price index?”
Irwin says the AARP considers changing the benefit calculation formula as a more feasible alternative than privatization. “That is an option to address the long-term solvency of social security,” he says.
Is raising taxes the answer?
Instead of decreasing benefi ts, the government could consider increasing payroll taxes to fund the social security shortfall. This option is unpopular among the general public, specifically with conservatives who say higher taxes adversely impact economic productivity.
The current payroll tax rate of 12.4% would need to be increased to 14.3% to cover the gap, according to the AICPA.
“Higher-income individuals would be taking a hit in that they’d still be paying in the same amount, but would be receiving less of a benefit as compared to lower-income people,” Ochsenschlager says.
Security in the midst of uncertainty
Social security benefits should not be counted on as the sole source of retirement income—the system was never designed to completely cover recipients’ living expenses.
“Quite honestly, social security—no matter what happens—even if there are no changes, even if you privatized and got the maximum return you could possibly expect, the numbers would not provide you with a lifestyle you would really aspire to,” Ochsenschlager says.
Planning for a secure retirement is difficult, especially as health care costs continue to increase. That’s why people who live at Monarch Landing; appreciate the monthly service package, which includes the cost of utilities and all maintenance, as well as one meal each day.
“The residents feel financially secure here due to the fact that all of their bills are wrapped up into one monthly payment—without the fear of huge variations,” says Cathy Gray, Monarch Landing’s retirement counselor. “Unlike owning their own homes where the cost of electricity and gas can fluctuate from month to month (depending on the weather), at Monarch Landing our residents don’t have to worry about that.”
And Monarch Landing residents have the peace of mind of knowing that they will always have the full complement of services provided by Erickson HealthSM.
The debate continues
Barring the passage of a bill enacting one of the above reforms, the federal government could be forced to fund social security from other revenue sources, such as the general treasury fund. An infusion of $3.54 trillion would be required to continue social security at present benefit levels, according to the AICPA.
Effective reform of the country’s social security system will likely take many years of continued discussion—a conversation that is sure to heat up as the 2008 presidential campaign progresses.
None of the reforms being considered would impact people currently receiving benefits or those over the age of 55 who will begin receiving benefits in the next decade, according to the Social Security Administration.
The future is less certain for younger people, who have been paying into the system but may not receive the benefits they thought they would.
“Younger people are going to start voting with their feet on this thing,” Ochsenschlager predicts.