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Social Security “Fixes” Will Compound Existing Economic Problems

Economics / US Economy Jan 26, 2010 - 07:16 AM GMT

By: Nilus_Mattive

Economics

Best Financial Markets Analysis ArticleI take retirement matters very seriously, which is why I’m constantly on the alert for any hint of a change coming out of Washington.

And make no mistake: There have been times when I agree with new legislation. For example, I had no problem with the temporary suspension of required minimum distributions last year. I also love this year’s revamped Roth conversion laws.


But when it comes to Washington’s decisions on Social Security and many other important matters, I’m almost always left fuming. The latest news that just crossed my desk is a perfect example …

These Are Possible “Fixes” Being Contemplated by Lawmakers?

Back in June, U.S. Senator Herb Kohl, Chairman of the Senate Special Committee on Aging, convened a hearing to examine ways to shore up Social Security. And he tasked the Government Accountability Office (GAO) with undertaking a study on various issues related to the program, including ways to improve its impact on lower-income recipients.

I hope Senator Kohl’s report tackles the big issues, but I’m not holding my breath.
I hope Senator Kohl’s report tackles the big issues, but I’m not holding my breath.

Kohl’s larger report on the entire system will be released in the near future, and I can’t wait to see it. But for now, U.S. News recently reported on some of the details in the GAO report. As the story explained:

“The GAO report reviewed eight areas where, it said, benefit changes were most commonly proposed. The report looked at how effectively each proposal would help lower-income beneficiaries, whether it would have much of a financial impact on Social Security, and on how difficult it would be to administer.”

So just what were those areas? What are some of the most common ideas our lawmakers are coming up with when it comes to making Social Security better? Here are a few of them:

  1. Guaranteeing a minimum benefit amount for people who have worked lower-wage jobs during their careers. Lowering the number of credits needed to become eligible for the program. Adjusting Social Security calculations to get more money into the hands of low-income single workers. Giving credits to stay-at-home parents so they don’t miss out on benefits.
  2. Increasing survivor benefits so widowed spouses, particularly those who didn’t work, are less affected by spousal deaths.

And the other ideas are much the same — they essentially amount to increasing benefits and coverage, particularly for folks who didn’t pay into the system (in many cases, voluntarily).

All of which leaves me wondering: Am I the only person who finds these ideas completely off the mark?

For starters, now is precisely the wrong time to be trying to find ways for Social Security to pay out MORE. Heck, over the long term, the system is already unable to pay out the money that has been promised to people!

What’s more, the program’s continual expansion over time has been gasoline on what was a well-intentioned, but ill-conceived, fire from day one.

I Sure Hope Washington Starts Talking About The Real Problems with Social Security Soon

Instead of rearranging deck chairs on the Titanic, our elected officials need to start talking about some simple facts:

Fact #1: Social Security’s pay-as-we-go structure, by definition, means that the more we ask it to pay out, and the more people we ask it to cover, the more money we need going INTO the system.

Fact #2: Right now, LESS money is coming in because of the recession.

Fact #3: Beneficiaries are generally living longer these days, which is compounding the overall funding crunch.

Fact #4: And based on demographic trends, there will be fewer and fewer people paying into the system and more and more people receiving money from the system as the baby boomers retire in droves.

All this is why — based on current estimates — Social Security will begin paying out more than it receives just six years from now.

I repeat: In 2016 (and possibly sooner), Social Security will essentially be losing ground every single day. And by 2037, it will only be able to pay out 78% of the benefits promised today.

Yet nobody in Washington wants to admit the fact that this system is unsustainable even as it currently stands, let alone in an expanded form.

I mean, seriously, can anyone on Capitol Hill even balance their own checkbook? And yet these are the people “fixing” Social Security!

Here’s what I expect to happen: They’ll continually follow the same “what us worry?” policies they pursue everywhere else. They’ll ignore budgets altogether and figure out ways to spend more instead. And they’ll keep kicking the can down the line.

How? By reaching deeper into our pockets through additional tax increases. Because mark my words — another Social Security tax hike and a removal of the current contribution cap are coming sooner rather than later.

Plus, they may even reduce benefits for many of the same recipients who spent the last few decades funding the program in the first place. One way to do this? Through additional taxes on benefits being paid to certain recipients.

Like I said, I can’t wait to get the full report from Kohl and company. Hey, maybe I’ll be pleasantly surprised and it will contain some real-world solutions to a growing problem.

Then again, I’m not counting on it. And you shouldn’t be, either.

Because if one thing is absolutely certain, it’s this: When it comes to planning for the future, and ensuring comfort in your golden years, you can’t rely on anyone but yourself.

Best wishes,

Nilus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


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