Fix it Right


Social security is nearing its moment of truth. If this massive time bomb is not drastically modified before the fuse gets too short, we may well have a violent backlash. Say “Greece”. Future generations will realize they are being taxed beyond their capacity to pay to support growing numbers of retirees with Social Security benefits as they live well into their 80s and 90s. The graph below demonstrates the decay of Social Security deficit projections in just the past year. Where will that money come from?

CBO Social Security Deficits

There are three options:

1. Do nothing, allowing the future to unfold leading to national financial ruin.
2. Kick the can along to the next generation with tax increases and band aid fixes.
3. Fix it now- forever- while the popular inertia is behind the idea.

1 and 2 are already discredited having been practiced over the past 50 years. Buying votes from senior citizens over the past 3 generations and fearing their retribution every other November has brought the system to the breaking point. The third choice is the only realistic path and we may just be witnessing the grass roots support to get it done.

Social Security was passed as a self sustaining government run plan to provide a minimum level of benefits to retirees, many of whom were entering old age destitute from enduring the Great Depression. Over the years it was larded with additional benefits, recipients, and the billions collected from payers were squandered on present spending. The money was replaced with government IOUs. The system just went into the red and those IOUs must be covered through additional taxes, deficits, and borrowing.

One way to save the system would be to ratchet the retirement age up over time to the equivalent of what it was in 1935. If it was a fair age of eligibility then, it is fair now. In 1935 life expectancy was 61.7 and eligibility began at 65. Today the average is 77.8. Using the original formula, benefits should start at just under 82 years of age. Although many seniors would be able to work well into their 70s, expecting them to do so until 82 is not realistic.

An alternative would be to allow anyone to retire at any age but be eligible for only monthly benefits based on lifetime contributions, and accrued interest divided by the number of months actuarial tables show as additional lifespan. These benefits could be paid until death based on this formula since half the recipients will pass on prior, and half after the expected life years point arrives. The longer one works before retirement, the higher their benefits would be.

Neither of these ideas will be palatable to seniors, but something like this has to be done to save our young and unborn from the consequences of an overly generous and unsustainable retirement program. The follow-on benefit will be that a majority of folks approaching retirement age will be highly motivated to save and invest on their own behalf well ahead of reaching their golden years.

These are just a couple ideas from which to start discussion. However no such dialogue can possibly start; and this huge problem cannot ever be solved without a tectonic change of leadership in Washington. There may be a loophole in history forming right now that could lead to such a move. The growing rage at the grass roots level, if coordinated and successful, could well bring a flock of principled and courageous new legislators to Congress in November. They would join the remaining battle scarred incumbents who after fighting for their political lives may indeed be ready to do the right things.

Let us hope the power and inertia of the tea party movement does not metastasize into a third party fiasco, but instead elevates strong, fiscally responsible candidates from both parties into office. There are good Democrats in the field who are running far to the right of the present administration, understanding that courageously breaking with past party orthodoxy is the only hope of being elected. There are mediocre Republicans presently in office who will be broomed out as happened to Bob Bennett of Utah.

It is our responsibility as voting citizens to elevate to office those who swear to address this entitlement Tsunami immediately for the benefit of our nation and its future generations.

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