By Alessandra
Malito Published: Sept 15, 2019 10:34 a.m. ET
Proposed solutions are
unpopular
The United States’ Social
Security system is both beloved and neglected.
As it stands, the program
— which provides benefits to retirees, the disabled and impoverished, as well
as children of deceased parents — is facing insolvency, and if the government
doesn’t act, beneficiaries will see a 20% cut to what they’re owed by 2035,
according to the Social Security Administration’s trustees report earlier this year.
Social Security is a
pay-as-you-go system, meaning today’s workers are paying for current retiree
benefits, and they’ll eventually receive benefits that future workers are
paying. There are two trust funds that support the system, and any extra
reserves in a given year go into those accounts (though, when there’s an annual
deficit, that same money comes out to fill the hole).
Most presidential
candidates have not touched on the future of Social Security in their
campaigns, and politicians occasionally resuscitate solutions that have been
discussed for decades: raising the full retirement age, which is when people
can claim 100% of their benefits, or increasing taxes, for example. Both are
controversial, however, as they inadvertently hurt a segment of the population
— raising the retirement age keeps benefits away from elderly people who may
need it now, and increasing taxes can become a burden to young workers, critics
argue. There’s also a proposal to raise the ceiling of the payroll tax cap, so
that high-earners pay more into the system. Experts say Congress has never let
Social Security run out of money, but it will take its time to decide what to
do to fix it.
For some Americans,
Social Security is a supplement to other sources of retirement income, such as
their own savings in a 401(k) plan or an employer-backed pension. For other
Americans, the benefit is a lifeline. Social Security benefits make up the
majority of retirement income for 61% of elderly beneficiaries, and a third of
them rely on the program for 90% or more of their income,
according to the Center on Budget and Policy Priorities, a governmental budget
policies think tank in Washington, D.C. The average monthly retirement benefit
was slightly more than $1,400 in July, though the benefit payment depends on
work and wage history.
The Trump administration
reportedly mulled plans to cut the payroll tax, at least temporarily, to help
the economy in the wake of a potential
recession. The cut would have put more money in Americans’
paychecks, but could have hindered the future of Social Security and Medicare —
which rely on that payroll tax. A similar plan was implemented during the Obama
administration after the financial crisis, but the government paid the
employees’ share of the tax thereafter (increasing the deficit but leaving the
program unharmed). No details were shared about what a possible cut would look
like, including how long it would last or how much would be shaved, and President Trump
has since denied it is under consideration.
Still, not all Americans
are certain they’ll ever see a Social Security benefit. The notion of
politicians saying the system is in trouble, or advisers saying clients
shouldn’t calculate benefits into their future plans, hurts citizens more than
helps, said Teresa Ghilarducci, a labor economist and director of The New
School’s Schwartz Center for Economic Policy Analysis and the Retirement Equity
Lab.
“That is a campaign,” she
told MarketWatch.
“There is a vested interest to ignore and belittle Social Security,” she said.
• Japan: Retiring in
Japan: Seniors greatly outnumber younger workers — and that’s a big problem for
everyone
• The United Kingdom: U.K. companies
are required to enroll workers in retirement plans — and it’s helping them save
more
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