Securing Social Security

This column originally appeared in the Williston Observer on April 2, 2009.

Securing Social Security

My first brush with Social Security came at a very young age. I don't recall the event specifically, but I carry the effect: my first Social Security card with my signature on it. Judging by the handwriting, I was likely right around ten years old when I signed it.

According to the Social Security Administration, the first year I made any money at all was 1983, and I grossed $359. That year, 5.4% of my income went to the pay the Social Security tax. This year, the tax rate is 6.2% for employees. Employers pay the same amount. The self-employed pay the full 12.4% themselves.

What is it that we get for that money?

Social Security was originally designed to be a savings account of last resort, a forced retirement savings account.

Throughout your working career, you pay into the program, and eventually, upon retirement, you start to get some of that money back. The plan is basically a government insurance plan, complete with actuarial tables, qualifications, and exclusions.

The point was to prevent retired workers from becoming destitute, to prevent widows from being turned out on the street with the death of the main breadwinner, and to prevent those injured on the job from becoming a burden on society.

The plan counted on an ever-increasing population, ever-increasing productivity, an ever-increasing tax base.

Contributions to the program funded the benefits paid by the program. Excess money was put in the Social Security Trust Fund, to be invested in government bonds, which the government promises to repay the Trust Fund with some interest. When outlays outpaced revenues, the Trust Fund would be tapped to pay the difference.

Projections from the Congressional Budget Office in 2008 predicted that in 2019, the Trust Fund would not longer be pulling in more than it was paying out, and those government bonds would have to be called in to pay benefits. This negative trend was not a blip: by 2049, the Trust Fund runs out of money completely, unable to pay all promised benefits.

Social Security has become the backbone of many Americans' retirement planning. There is an obligation to pay back the benefits that the workers have contributed hard-earned money to get. Having the Trust Fund run out of funds is simply not a viable option.

Benefits could be cut, but the problem is that the cost of living never seems to go down, so decreasing benefits does not seem to be a good way to prevent destitution. The cutting of benefits is also a political third-rail, touched by politicians at their own risk.

There are several steps that could be taken, none of them painless.

First is to raise the Social Security tax. The tax started out at 1% in 1937, and has increased over time, but not since 1990. A rise to 6.5% might be in order.

Another is to raise the retirement age. It has been done before - the age at which benefits could be collected was originally 65 and is now 67. A gradual increase to 68, 69, or even 70 could do much to aid the solvency of the fund.

Finally, the ceiling on the taxable income could be increased or eliminated. Did you know that all income over $102,000 is exempt from the tax? The reason for this eludes me - there are some who reach this limit in a month, even in a week, and once the limit is reached, no more tax is paid. If we taxed all income, the extra funds could bring a long and happy life to the trust fund.

One recent idea that history has shown to be an exceedingly bad one is privatization - allowing you to invest your contribution in any number of ways, including in the stock market. Can you imagine the financial tragedy if billions in Social Security funds had been invested in the recent stock market?

Social Security is a vital program that many people rely on today or will rely on in the future. We must continue to do what is necessary to keep the program viable.

Though there is not much in the news now about any partisan battles to keep the Trust Fund in the black, you can be sure they will come. In the meantime, do your homework, so that you can start planning how Social Security will enter into your own personal retirement plan.