Social Security ideas that make sense

No more Social Security at 62?

By Jennie L. Phipps · Bankrate.com

Sunday, June 2, 2013

Posted: 7 am ET

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The Social Security Board of Trustees released its annual report Friday on the financial health of both the retirement and the disability trust funds.
The report projected that the retirement trust fund will be depleted in 2033 -- unchanged from last year's projection. It said that unless Congress acts, at that point the program will be able to pay only 77 percent of promised benefits from ongoing contributions. The disability trust fund will be depleted much sooner -- in 2016 -- when the program will be able to pay only 80 percent of promised benefits.
Other statistics from the report that you might find interesting include:

• More than 57 million people were receiving Social Security by the end of 2012.
• In 2012, approximately 161 million people paid payroll taxes on earnings covered by Social Security.
• The total money held in reserve by the program rose by $54 billion in 2012 to $2.73 trillion.
• The cost to administer the program in 2012 was 0.8 percent of total expenditures, a total of $6.3 billion.

A few days prior to this announcement, Donald Fuerst, senior pension fellow at the American Academy of Actuaries, testified before the U.S. Congress about Social Security's pending shortfalls. He said that in 1940, when the new Social Security Administration began paying monthly retired-worker benefits, the retirement age was 65. At that time, workers who survived to age 65 had a remaining life expectancy of 12.7 years for men and 14.7 years for women. By 2011, life expectancy at age 65 was 18.7 years for men and 20.7 years for women, an increase of six full years for both.
In 20 more years, life expectancy at age 65 for men is expected to be more than 20 years and more than 22 years for women, Fuerst pointed out.
The bottom line: If something doesn't change, we won't have enough money to pay the Social Security that is promised, a retirement planning disaster.
Fuerst offered Congress several suggestions for fixing this problem. His most controversial idea is probably raising the minimum age for collecting Social Security from 62 to at least 64.
Here's what he'd also do to make an increase in retirement ages less painful for workers:

• Gradually phase in any change over an extended period of years, even decades, to allow for more time for society to adapt to the new work-life reality. "Give people time to plan and prepare. You wouldn't want to change it for someone who was planning to retire the next year. None of us would consider that fair," Fuerst says.
• Reduce benefits for higher-paid workers. "Wealthier socioeconomic groups recently show more longevity improvements than poorer socioeconomic groups," Fuerst points out.
• Revise the Social Security disability program. Make the requirements more lenient for people between ages 62 and full retirement age, so those in occupations that involve physical labor wouldn't have to continue to work at jobs they couldn't physically do.
• Cut or eliminate the wage tax for both employers and employees for people between ages 62 and full retirement age. It would give an incentive to both groups to keep older workers on the job.

Will a plan this complex and drastic ever wend its way through Congress? Fuerst thinks it should, but he isn't optimistic. "It isn't going to be easy; there are too many competing interests," he says.