Filed under: Money and Finance Today, Personal finance
USA Today writes about the first baby boomers retiring next year at a rate of 365 an hour. The articles goes on to use terms for the fix that feed into the fears the current Administration is raising about the event. But is the crisis truly that bad? Yes it’s true a fix is needed for Social Security, but if you look closely at the numbers used even in the USA Today you’ll see that the fix is not that drastic. As long as we take it seriously and do something.
In the story USA Today states the fix would need to be a 16% increase in the existing payroll tax or a 13% cut in benefits. First let’s look at that 16% in actual tax rates. The current tax rate for Social Security is 15.3%, which is 7.65% paid by the employee and 7.65% paid by the employer. Were the Congress to decide to fix the system solely by using tax increases then the increase would be 2.448% or 1.224% for the employer and the employee. That added would move the total tax collected to 17.748% (or 8.874% from one’s paycheck). When a cut in benefits is discussed options always look at future promised benefits. The cut would not impact those currently collecting Social Security, but may include a number of different things such as increasing the age for retirement, reducing the COLA increase, or some other combination of benefit changes.
The fairest way to fix the problem would be a combination of tax increases and cuts in promised benefits. Let’s say we cut responsibility for the fix in half - an 8% increase in tax rates or 1.224% shared equally between employer and employee: each paying 0.612% more in taxes. Would you be willing to pay that to secure Social Security for at least 75 years? A cut of 6.5% in promised future benefits would be necessary if the fix is to be shared by all.
Continue reading Social Security: Scare tactics or true crisis?
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