In the near future, you’re going to start hearing more and more GOP proposals to cut Social Security under the guise of “entitlement reform” as the party suddenly rediscovers its concerns about budget deficits — notwithstanding the fact that they passed a huge tax cut that added trillions to the debt and benefited mostly wealthy individuals and corporations.
“With seniors most at risk from Covid-19, we need to be increasing Social Security’s modest benefits, not creating secret commissions to cut them.”
Social Security’s Financial Outlook: The 2020 Update in Perspective indicates that while the trust fund depletion date still stands at 2035, long-term negative impacts are unlikely. Further, this pandemic has highlighted the importance of Social Security to older Americans. For millions, their monthly checks are the only steady source of income in retirement.
It’s important to recognize that depletion of the fund doesn’t mean bankruptcy for Social Security. Revenue from payroll tax covers 79 percent of the current benefits, according to the research, but relying on this revenue would mean a drop in the replacement rate in years to come.
While Social Security does face a funding shortfall, it only accounts for about one percent of the total U.S. gross domestic product, and dramatic events such as the COVID-19 pandemic are unlikely to have long-term implications on the funding status. If anything, the pandemic has proven the importance of reliable and steady retirement income, the research indicates.
[Via CEPR] Last month the Social Security Trustees published their annual report on the state of Social Security. Although two of the appointed trustee positions are vacant and the Trump administration has repeatedly called for cuts to the program, the Trustees (all Trump appointees) agree the program’s long-term outlook is optimistic.
Social Security, the program that provides retirement and disability benefits to millions of Americans every year, has a projected shortfall equal to 3.21 percent of taxable payroll over the next 75 years. The program’s benefits are fully funded through 2034, after which they are 79 percent payable, assuming no changes are ever made.
The projected shortfall means that to fully fund the program, payroll taxes would have to be increased by 3.21 percentage points. This is an increase from last year’s 2.78 percent projected shortfall, likely due to the decreased projections in average wage growth over the next 50 years. In 2019 the trustees predicted that average real wages would grow by 1.42 percent annually over the next 30 years; this year, they predict only 1.29 percent annual growth.
An increase in taxes is never trivial, particularly for low-income workers. However, even with this year’s lower wage growth projections, it is clear that growing wages have a much greater impact on the average worker’s financial situation than the increased taxes. These amounts are compared in Figure 1 below.
While it is unlikely that the Trustee’s projections will hold up over the next 50+ years, they still illustrate the relative importance of wage growth compared to the tax increase. Figure 2 shows what would happen to a salary of $50,000 per year in 2020 over the next 30 years. Based on the average wage increase, this salary would grow to $68,084 at the current payroll tax rate, and $65,754 if the tax were increased to fund the program fully.
In addition to being easily fixable, it is important to note that the shortfall in the Social Security trust fund is not an indicator of the function of the program itself. A large portion of the shortfall is directly tied to the increase in income inequality. The payroll tax which funds the program is only levied on the first $137,700 of wage income per year (in 2020), allowing many higher-income workers to escape paying into the program at the same rate as the rest of the population. When that cap was first established in 1983, only 10 percent of wage income was over the maximum, but by 2016 it was more than 17 percent. In this same time frame, the lower-earning population who pay a greater effective tax rate have not experienced the same wage growth as high earners.
With such compelling evidence of its value and near-universal support from the American people, there is no reason Social Security should be viewed as “struggling.” Moreover, solutions to the projected shortfall are many: 1) slightly increase the payroll tax (as discussed above); 2) remove the tax cap on very high earners; or 3) to simply add money to the trust fund.
Full article (including downloadable graphics): CEPR »
[via CNBC] Retirees who feel their Social Security benefits aren’t stretching as far as they used to aren’t imagining it.
Retiree costs are going up at a rapid clip, and Social Security cost-of-living adjustments are not keeping up with those growing expenses, according to a recent report from The Senior Citizens League, a nonpartisan senior advocacy group.
For example, someone who retired in 2000 would have seen their average Social Security benefit of $816 per month increase to $1,246 this year. But to keep up with inflation, they would need $1,626 — an extra $380 per month — the report found.
The group also predicts that the Social Security cost-of-living adjustment, or COLA, for 2021 could be zero. That’s based on data from the Bureau of Labor Statistics’ Consumer Price Index through April. That index is used to calculate the annual Social Security COLA.
The official COLA is announced every year in October, so the current prediction could change by then. Just last month, the group predicted the COLA would be 0.8% in 2021. The Social Security adjustment has been zero before, in 2016, 2011 and 2010.
A lack of any increase at all would come at a time when seniors are already feeling squeezed financially. The Senior Citizens League found that Social Security benefits have lost 30% of their buying power since 2000.
While benefits increased by 53% from January 2000 to January 2020, the costs of goods and services retirees use most jumped by 99.3%.
[via Pittsburgh Post-Gazette] Ronnie Sturccio is not your typical 68-year-old senior citizen. Her regular routine includes lifting weights at the gym, running up to 5 miles a day, figure skating and working two part-time jobs that she is nowhere near ready to retire from.
Yet she has been forced to leave the workforce earlier than she had planned on two occasions since reaching retirement age.
The first time was when her father became terminally ill five years ago and she ended her 28-year career as an alternative school therapist in order to care for him. Most recently the COVID-19 crisis caused her to be laid off from her part-time jobs working the ticket booth at Alpha Ice Complex in Harmarville and also her substitute teaching jobs in the East Allegheny and Gateway school districts.
“I’m not ready to quit working,“ said Ms. Sturccio of Plum. “Financially I’m taking a hit. I was making money. Now that money is gone. I’m living on just Social Security now and my money is tight.”
Like many workers who expect to retire on their own terms, Ms. Sturccio has found life has a way of throwing curve balls.
Americans tend to retire earlier than they expected, according to a recent study by Allianz Life Insurance Co. of North America, which found more than half of workers will be forced out of the workforce earlier than expected and for reasons out of their control.