Social Security Proposed Changes

Social Security and Medicare

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Proposed Changes for Social Security

Social Security celebrated its 75th anniversary in 2010. Signing into law the Social Security Act on August 14, 1935, President Franklin D. Roosevelt offered these words about the program: “We can never insure 100% of the population against 100% of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”

After three years of disbursing lump-sum payments to qualified beneficiaries, the Social Security program first began awarding monthly payments to qualified retired workers in January 1940. It is financed primarily by employee and employer payroll taxes, which began at 1% and is currently 6.2% each on earnings up to $106,800. There have been more than 20 increases in this tax since it was implemented, but this has remained at 6.2% since 1990 (one exception was the 2011 tax holiday that reduced the employee tax to 4.2%). In the program's first full fiscal year (July 1, 1941 - June 30, 1942), income received was $723 million, while benefit payments totaled only $78 million. Since the enactment of Social Security, many changes have occurred, most of which have resulted in more widespread coverage. Today, more than 54 million people receive monthly benefits – totaling $702 billion in payments. For many retirees, these monthly benefits comprise a majority of their monthly income. However, Social Security is not intended to be the sole source of retirement income, but rather a building block which a retiree supplements with his or her own pension, savings, and other investments.

In its most recent report of the financial status of the Federal Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds, the Board of Trustees indicate that at the end of 2010, OASDI trust fund assets were $2.6 trillion. Although the funds are projected to continue to increase for many years, the long-range projections reveal that the trust fund assets will be depleted in 2036. Demographics contribute significantly to this financial strain, primarily with longer life expectancies and a “baby-boom” generation that began reaching early retirement age in 2008. Accordingly, cash-flow deficits are expected to begin in 2023, causing a redemption of trust funds in order to continue full-payment of benefits until 2036. In its conclusion, the Trustees’ report states: "The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers and beneficiaries can be given time to adjust to them?. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations."

Although a comprehensive plan has not been presented on how to address these Social Security concerns, there are some basic alternatives.

Some recommendations to boost revenue for the trust funds include:

privatization proposal

increasing the payroll tax rate (which President Bush opposes)

raising the maximum earnings ceiling on which the payroll taxes are levied

requiring new state and local government workers to join the program

investing a portion of Social Security's reserves in stock market index funds

In order to reduce the amount of benefits disbursed, other options include:

raising the retirement age

limiting the benefits of high-income retirees

modifying the cost-of-living adjustment (COLA)

discouraging early retirement

changing the way the benefit formula is constructed

Although Social Security is not in a short-term financial crisis, some action is needed to address the long-range situation.

With Social Security constantly in the news, your employees need to know about this program and how it affects their retirement planning. You can request the Guide to Social Security to explain this program and help them plan for a financially-secure retirement. This is a single, easy-to-use resource about Social Security Retirement, Disability and Survivor benefits. Order Today!