Tuesday, May 3, 2011

Retirement Program Broke in 2037

Well, not broke, just able to pay 78% of promised benefits.  So why be concerned about something that is 26 years away?  I will be 67 and full retirement age in 2037.  If the system cannot pay the promised benefit in 2037, then I and a lot of other late boomers need to start adjusting our retirement plans.

Raising taxes places additional strain on individuals and families.  Lowering benefits changes retirement savings plans for individuals at and over 50 mid-stream.  With the cost of the trust fund's operations already exceeding income for 2010, again next year, and permanently in 2015, the time to act is now.

The choices come in three flavors.

    1.  Raise FICA taxes on employees and employers without changing the benefit calculus.
    2.  Change the benefit calculus to lower benefits now to and extend the life of the program later.
    3.  Raise the retirement age.

Raising taxes has an immediate and adverse consequence on family budgets.  Changing the benefit calculations in  the long term means will cause a dramatic impact in catch-up savings impacting those closest to retirement age the most.  Raising the retirement age extends the work life of healthy individuals, decreases the payouts by eliminating months or years of payments in perpetuity, and increases the FICA payments during that extended work-life.

Wishing and hoping that Social Security will be around when we reach retirement age will not make it happen.  Congress needs to take leadership, swallow the bitter medicine, and explain the simple truth to the American people.  The concept of a system of providing benefits to aged Americans depended on a large base of contribution and a narrow peak of receipts.  That paradigm has shifted as median age of 36.5 has climbed 2 years in the past decade.  No smoke, no mirrors, just a plan.  We need another Moynihan with the gravitas to lead the charge and save the system.

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