This column first ran Dec. 15, 2016, in The Hill, a daily journal that covers the federal government and related policy issues.
As the federal government’s largest entitlement program, Social Security faces the possibility of having to reduce payouts for millions of new retired workers after 2037. To prevent what would be a political and social disaster, I hope the new administration works with Congress to fashion a non-partisan solution.
An examination of the Republican and Democratic parties’ pre-election platforms, however, suggests that the parties are pretty far apart. The Republican platform position would allow us to invest some of our Social Security savings in the stock market while making unspecified reforms to address the increasing longevity of the population.
The Democratic platform advocates higher taxes on those with incomes above $250,000 along with adjustments to cost of living payments that would more accurately reflect the spending pattern of retirees. Of course, we all understand that platforms do not always indicate how policy actually gets implemented.
- Retirees must be able to count on Social Security payments, and steps must be taken to maintain solvency of the system
- Social Security should be fair to all beneficiaries without the ability for anyone to “game” the system.
- Social Security should be supplemented by retirement accounts geared to deliver retirement income
- Any increase in taxes for higher earners should be packaged with some additional benefit.
What I propose
Here are my specific reform proposals, which are more about tweaking some of Social Security’s rules, rather than a wholesale redo:
- Permit deferral beyond age 70. The later that people start benefits, the more money they would get each month. Deferring payments would reduce the outflow of cash from the system and would buy time for younger earners to enter the job market and start paying their share of taxes. An interesting point: Most demographic projections predict that immigration to the U.S. will increase the population of young earners enough to solve most of Social Security’s financial issues.
- Allow a gradual move into Social Security benefits. As people live longer, more of them prefer to cut back on their work, but not stop working completely. So let them do it and receive a portion of their Social Security benefits necessary to complement earned income. Like the above, payouts would increase in the long run but cash flow would be lower in the short-run.
- Permit buy-in into the Social Security system from 401(k) or rollover IRA savings. This would provide new cash for the system and in return provide an additional annuity of guaranteed, inflation-adjusted income to participants. Encourage this option by not taxing a portion of payments, up to a nominal amount.
- Continue credits when people drop out of the workforce to care for a parent or raise their children. There is a cost associated with this proposal that would have to be offset by slightly higher taxes on participants.
- Increase the Social Security tax brackets to keep pace with an increase in benefits. Right now the tax brackets are not increasing with inflation, causing more Social Security benefits to be taxed.
- Offer a universal IRA to everyone. This should be available to all, whether they work a 9 to 5 corporate job or not. It, too, should be convertible to a Social Security payout at the appropriate time.
- Gradually increase normal retirement age. As part of the above package of enhanced benefits, reflect Americans’ increased longevity and slowly push back the date of retirement.
These ideas are designed to support the long-term health of Social Security and to provide basic retirement benefits to everyone. Of course, they must be considered within the universe of other issues to be dealt with. Some proposals under discussion – general across-the-board tax cuts, for instance, leading to deficit spending – could result in draconian cuts in entitlement programs.
So why not start discussions now? Helping millions of retirees could provide an area of compromise.
Jerome Golden is a nationally recognized advocate for retirees and founder and CEO of Golden Retirement, LLC, and Go2Income.com.