The latest reports on the health of Social Security say this massive number of retiring boomers will exhaust Social Security's trust fund money by 2037. After that the payments will have to come solely from current worker contributions. That's a scary thought, considering that there will be only two workers for every one retiree by then.
But before you panic, there are still 26 years to fix the problem. Here are five ways to right the sinking ship and keep Social Security flowing until at least 2075 when babies born in 2010 will be 65 and old enough to devise their own solutions.Caution: None of the ideas ahead are painless.
1. Raise the Number of Workers
If we revise our immigration policy to make way for more young, hard-working immigrants, the Social Security and Medicare fiscal problems would take care of themselves, says former Clinton administration Labor Secretary Robert Reich. "Yes, I know: There aren't enough jobs right now even for Americans who want and need them. But once the American economy recovers, there will be. Take a long-term view and most new immigrants to the U.S. will be working for many decades," Reich predicts.
2. Eliminate the Cap on Social Security Taxes
Currently, workers and employers each pay Social Security taxes on the first $106,800 of income -- about 83% of all wages. Anything earned over and above escapes taxation. If we tax all income -- but don't raise payments to workers who make more than the cap -- we'll eliminate 100% of the shortfall, according to the American Academy of Actuaries. The problem will be persuading all those powerful high earners that they should pay more without getting more.
3. Make Everybody Pay More and Give Some Recipients Less
Raising payroll taxes on workers and employers from 6.2% to 6.7% solves about 50% of the problem. Then reducing benefits paid to the 50% of people who earn the most eliminates the rest of the shortfall, the actuaries calculate. The difficulties with this solution are too numerous to list.
4. A Little Here and a Little There
If we levied Social Security taxes on all new state and government workers (solves 9% of the problem), taxed all Social Security benefits like we tax pensions (solves 14% of the problem), raise the annual earnings cap to cover 90% of all wages and use the higher cap for calculating benefits, too (eliminates 37% of the shortfall), and reduced the cost-of-living adjustment by 0.5% for everybody (fixing the remaining 40% of the problem), we'd have it licked, according to the actuaries. And we'd make absolutely everybody a little miserable.
5. Throw it All Out and Start All Over
One suggestion from blogger Bill Parks is to levy a 6% tax on all earned income and cap Social Security benefits at $3,000 a month -- both indexed for inflation. Mathematically, this appears to work, but it's uncharted territory. Parks is enthusiastic nevertheless, writing, "Wealthy wage earners can afford to contribute 6% of their total earned income to help finance one the most important entitlements program in our nation's history."