A lot can happen in 20 years. A newborn baby would be getting ready to graduate college. A young college graduate would be halfway to retirement. A retired couple would have two decades to look forward to enjoying their final years.
That is something the child and the graduate may not be able to enjoy if Social Security remains unchanged by 2033.
Social Security is fast becoming a casualty in the internal budgetary battles on Capitol Hill. Just like the fiscal year 2014 budget and the across-the-board discretionary programs that go with it, a solution must be applied sooner rather than later. Otherwise, benefits will incur steeper cuts down the road.
The Committee for a Responsible Federal Budget (CRFB) released a new report on the risks of doing nothing to fix Social Security and provided several solutions that Democrats, Republicans, and those in between, can agree on.
The CRFB lists four consequences of prolonging the inevitable:
1. By 2033, a 23% percent cut in benefits would become necessary for the program to remain solvent for 75 years. If that cut was due today, it would be only 16.5%.
2. To prevent the real fear of insolvency from creeping up, payroll taxes will need to be raised 4.2%. That is a steep hike considering it is now 12.4% for employees and employers to share. The good news is that 4.2% hike will be required in 20 years. Today, it would simply need to be only 2.7%.
3. The idea of a chained Consumer Price Index to slow the growth of benefits to better account for retiree spending is losing its significance the closer we get to 2033. It will not be enough, only covering 20% of the gap, given the other circumstances.
4. Another very common issue to understand when dealing with retirement is that you are working on a long-term plan. That means the earlier you start planning, the better your chances will be at accumulating more money for your own personal trust fund.
Both parties are playing poor brinkmanship and those that believe Social Security does not need fixing in the long-term with present day solutions, are either not paying attention or do not know any better.
According to the actual trustee overseers of Social Security, the funds will run dry by 2033. The wrong way of looking at this dreaded scenario is that the problem is a few years away and the current system is not a priority worth fixing today. Some very important people feel that the problem is a generation or so away. The bottom line is they are wrong.
Kicking the problem down the road will not help the current generation as we will also be relying on the same funds in our retirement. If Democrats and Republicans are arguing over how to fund the government past the quickly approaching deadline, what is to prevent the status quo from being kicked further past 2032?
Something needs to be done and kicking the can should stop being the status quo. The very important decision-makers can make up their mind by listening to the next generation of leaders.
The Social Security system is a progressive system in that needs to be maintained through each generation. Every generation or so, the population expands and grows older, affecting the number of beneficiaries. Inflation takes its toll on benefits. Wages, which benefits are indexed to, increase over time. Even as government is in constant transition with the focus either on taxing or cutting, the Social Security system needs to be reviewed.
It makes better sense to maintain a constant eye on the system and not only make changes sooner rather than later, but not wait so long between changes in the first place. The benefit cuts, tax increases, and other fixes are only projected to prolong the solvency another 75 years. If the system gets fixed sooner, the solutions will cost less and the system will be stronger longer.