Those who receive monthly Social Security checks are by now aware that no cost of living adjustment is forthcoming in 2011. Cost of living adjustments are dependent on inflation, and for the second year in a row the Social Security Administration made the determination our economy is experiencing no inflation, thus no increase in benefits.
The future of Social Security is in a quandary, and Congress seems less than anxious to tinker with the revered institution. However, the “baby boomers” are retiring and putting a strain on the solvency of Social Security. Present estimates project that in 2016 the fund will begin taking in less than it gives out, and by 2037 Social Security will be insolvent. Once insolvent, Social Security benefits will be about three-quarters the amount they are now, because they will be paid out on a cash basis, based on what comes in.
The “baby boomer” generation includes those born between 1946 and 1964. It is so-named, because the birth rate exponentially increased when American soldiers came home after World War II. On the average, the birthrate increased every year between 1946 and 1964, before beginning a gradual, but continual, downward trend. Therein lies the problem, more people are leaving the work force through retirement, than are entering the workforce. Thus, a smaller mass is required to support a greater mass, and mathematically that doesn’t equate over an extended period of time.
Presently, the amount a recipient receives depends on her age of retirement and average income, but because of the projected shortfall change is necessary. One of the following or a combination thereof may be implemented:
- Government secured investments: In this scenario workers invest and the federal government guarantees a mandated percent of return on their investment, and any return above that guarantee belongs to the investor.
- Raise the retirement age: If the retirement age becomes 68, less would be paid out in benefits, which is good. The downside, though, is that would negatively effect young workers. They would pay longer and receive benefits for a shorter time. The same holds true if the basic Social Security tax increases.
- Higher wages taxed: Presently, worker’s pay Social Security taxes on the first $106,800 of income, and monies earned above that level is not taxed. Increase the level on which Social Security taxes are paid is an option.
Whatever the solution, time is of the essence, along with the resoluteness to correct the problem. No matter what decision Congress makes won’t please everyone, but that is a small price to pay compared to accepting the inevitable insolvency.
Kimberly Palmer: What You Should Expect from Social Security: Yahoo! Finance.mht