While grappling with Social Security’s solvency will continue to be a controversial priority for the next administration, regardless of who wins the White House, Rep. Reid Ribble, R-Wis., recently offered up his own remedy to ensure the government program remains solvent for the next 75 years.
The Save Our Social Security (S.O.S.) Act, introduced in early July, uses a combination of revenues, benefit adjustments and raising the retirement age while preserving early retirement to fill the funding gap.
“Social Security is the single biggest step we have taken to reduce senior poverty, and if we do nothing, seniors will see their benefits cut by 21% in 2034,” Ribble said in a statement announcing the bill. “The problem gets worse the longer we wait.”
The trustees of the combined Old Age and Survivors Insurance and Disability Insurance trust funds reported to Congress in late June that they project the OASI fund will be depleted by 2034 (the same as projected last year), with the disability fund depleted by 2023.
Ribble’s bill would increase the contribution rate and benefit base to 34% by 2022, with the breakdown as follows.
Increase payroll subject to taxes over 5 years to 90%, then index to 90% (current cap is $118,500):
FY2022: shall be determined by the commissioner – “such that the percentage of the total earnings for all workers that are taxable is equal to 90% for each calendar year.”
The bill would also increase the retirement age from 67 to 69, starting in 2022. The bill preserves the early retirement age of 62, which Ribble noted that 34% of workers currently take.
A recent Spectrem Group report, Social Security: When and Why?, found that for more than 60% of investors who are receiving Social Security benefits, the payments represent between 10% and 50% of their current monthly retirement income. For 32% of those with a net worth between $100,000 and $1 million, it represents at least 50%.
Cost of living adjustments under Ribble’s S.O.S. bill would move from the current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Chained Consumer Price Index for all Urban Consumers (C-CPI-U), which accounts for how people switch their purchases as relative prices change.
Moving from a COLA based on CPI-W to one based on the C-CPI-U would be about a $2 per month reduction for most Social Security recipients. Wealthier recipients would be asked to reduce, over time, their benefits by $2 per month, Ribble said, while the bill would raise benefits for Social Security recipients living in poverty. Ribble noted in remarks at a Capitol Hill event that “today, roughly 9% of seniors live in poverty; we’re going to cut that nearly in half.”
To help seniors most at risk of living in poverty, the bill creates “a minimum benefit at 125% of the poverty line for those who worked a full career.”
Spectrem Group’s online study, however, found that 63% of investors believe there should be no income limit restricting Americans from receiving benefits. The wealthier the investor, the more the 634 respondents said there should be no income limit to receiving Social Security.
Spectrem’s online study, conducted in February, polled those 55 and older – 100 of whom were mass affluent, 296 were millionaires and 149 were ultra-high-net worth.
The bill also calculates recipient benefits based on the worker’s highest 38 earning years rather than highest earning 35 years, and phases in a 5% benefit increase for beneficiaries who have received Social Security for 20 years or more to address likely depletion of retirement savings and high medical expenses.
The S.O.S. Act also attempts to prevent Congress from robbing the Social Security trust fund by creating a rule against even considering any legislation that would push the Social Security trust fund into the red.
— Check out 11 Medicare Mistakes to Avoid on ThinkAdvisor.