From the March 2006 issue of Investment Advisor • Subscribe!

In '07 Budget, Modest Changes in Social Security

During his State of the Union address in late January, President Bush said he plans to create a bipartisan commission to study the full impact of baby boom retirements on Social Security, Medicare, and Medicaid. In 2006, the first of nearly 78 million baby boomers turn 60, which will put "unprecedented strains on the federal government," Bush said in his speech. By 2030, he said, spending for Social Security, Medicare, and Medicaid will comprise nearly 60% of the entire federal budget. "That will present future Congresses with impossible choices--staggering tax increases, immense deficits, or deep cuts in every category of spending."

Bush noted in his speech that Congress failed to act last year on his idea to save Social Security through personal

savings accounts--proposals that were vehemently opposed

by Democrats. Bush urged Congress "to put aside partisan

politics and work together and get these problems solved."

Bush's 2007 Budget, which he sent to Congress in February, calls for eliminating the $255 lump sum death payment that widows, widowers, and children receive. Mark Lassiter, a spokesman for the Social Security Administration, says the payments--which go to widows who are living with the wage earner when they died--was originally established to help widows pay for funeral expenses. The benefit hasn't been changed since 1954, and the administration is now proposing to eliminate the $255 lump sum payment because it "no longer has any relevance to the current costs of funerals or any relationship to the worker's earnings," he says. Also, freeing up that money would allow the Social Security Administration to "devote those resources to making faster

decisions on disability cases," Lassiter says.

Under current law, Social Security pays benefits for children of a retired, disabled, or deceased worker until age 18, regardless of whether they are in school. But Bush's new budget

proposes that once a child reaches age 16, they must still be a full-time student to in order to be eligible for benefits. The new proposal "would serve as an incentive for kids to stay in school," Lassiter says. "There are about four million children beneficiaries, and on an annual basis, this new rule would impact about 20,000 of them."

In addition, the Bush budget also includes a proposal

that would establish a mandatory system for collecting data

on pension income from non-covered state and local

employment, Lassiter says.

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