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News August 2013

To Save Social Security the Minimum Retirement Age Could Rise to 64

By Teresa Ambord

 First, the most controversial proposal: Raise the minimum retirement age from 62 to 64. Fuerst told Congress if this is adopted, it be phased in slowly to give society a chance to adapt and prepare for a delayed retirement. He would even suggest doing it over a period of decades, however with the “depletion” date in two decades, 2033, this might be too little too late.

The future of Social Security is constantly up for debate. Will benefits be reduced? Will they be eliminated altogether? Will future retirees have to work longer than planned? The truth is, there are no answers, but the debate continues. Various scenarios get floated around and they seem to change year to year. But for the last couple of years, the underlying figures haven’t changed much.

Recently the Social Security Board of Trustees met to take yet another look at the figures. Here’s what the report said. Unless Congress votes to change something:

  • Retirement: The Social Security retirement fund will be depleted by 2033 (same projection as last year. Two years ago the projection was 2036). If this happens, benefits could be reduced to 77 percent of the promised amounts. Those benefits will be paid out of ongoing contributions, not from an existing fund.
  • Disability: The Social Security Disability fund could be depleted much sooner, by 2016. If this happens, recipients will get only 80 percent of promised benefits.

Why the depleted reserves? The reasons vary. Some are political and complicated, including a shrinking pool of workers and an expanding pool of retirees. One key reason is, we are simply living longer.

  • Life Expectancy: In 1940 when the Social Security program began paying monthly benefits, the retirement age was 65. Sixty-five-year-old men were expected to live another 12.7 years, and 65-year-old women were expected to live another 14.7 years.

Leap forward to statistics available from 2011. Sixty-five-year-old men live, on the average another 18.7 years, and 65-year-old women live another 20.7 years. That’s six additional years for each, and six more years of benefits paid out for each recipient.

In two more decades, life expectancy should rise again. It is predicted 65-year-old men will live another 20 years, and 65-year-old women, an additional 22 years.

 

Suggested Fixes

Here are some of the solutions which are bandied about. Some experts believe we should implement all of them. Donald Fuerst of the American Academy of Actuaries testified before Congress, with these recommendations.

First, the most controversial proposal: Raise the minimum retirement age from 62 to 64. Fuerst told Congress if this is adopted, it should be phased in slowly to give society a chance to adapt and prepare for a delayed retirement. He would even suggest doing it over a period of decades, however with the “depletion” date in two decades, 2033, this might be too little too late.

Fuerst also outlined these suggestions:

  1. Reduce benefits for higher paid workers, not as a punishment for earning more money, but based on the belief higher-paid individuals live longer and therefore absorb more benefits.
  2. Revise the Social Security Disability program to make the requirements more lenient for people between 62 and full retirement. The originator of this idea states people in occupations which involve physical labor wouldn’t have to continue to work at jobs they cannot physically do. It’s unclear how, if at all, this would help the viability of the SSD program. On the surface it appears to create a further drain on the system.
  3. Cut or eliminate the wage tax for employees as well as employers on workers between 62 and full retirement. The theory is, this will give employers an added incentive to keep those employees on the job, and make work more profitable for employees.

There are many other suggestions, each claiming to be the one and only way to solve the depletion issue. However some are quite controversial and border on confiscation from the wealthy, so in the interest of not raising readers’ blood pressure and shortening their life expectancies, I won’t go into those.

I wish there was good news, but the bottom line is, there is no easy answer. This could be one of those issues which Congress drags its feet on until an emergency is reached.

 

Take Two Grains of Salt and Call Your Congressman in the Morning

One of the many controversial recommendations for “fixing” Social Security involves removing the cap which currently limits the wages on which you pay 6.2% Social Security tax. In 2013 this is $113,700. After that, you still pay 1.45% on all wages (this is a separate tax called the Medicare tax). Just about each year, the wage base inches up.

Some suggest we remove the cap, making all wages subject to the combined total of 7.65% (which is 6.2% Social Security and 1.45% Medicare).

Others, for some reason, suggest another plan. They suggest leaving the cap at $113,700 but when wages reach $250,000… it comes back. If this happens, individuals earning $1 million will pay an additional $46,500 in Social Security taxes every year till they retire. And for their greatly increased contribution, they get… nothing.

At least one proponent of this odd plan justified it by saying, people who earn a million dollars can just as easily live on $953,500 and shouldn’t whine. Alrighty then. Sounds like sour grapes to me, but what do I know?

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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