The Elephant In The Room That Current Politicians Are Ignoring!

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Social Security is America’s ultimate political third rail.
Touch it and you die politically. So Washington has discovered an ingenious alternative:

Don’t touch it. Kick it.

Kick it to the next Congress. The next president. Our children. Our grandchildren. Eventually, perhaps, someone will invent a time machine and send the bill back to 1983. Unfortunately, the time machine hasn’t been funded.

The unpleasant truth is that Social Security’s finances are headed toward a serious problem. The Trustees project that the retirement trust fund will be depleted in 2032, after which continuing tax revenue would cover only about 78% of scheduled retirement benefits.

Social Security isn’t suddenly going broke next week. That’s actually worse. It will still have money coming in—but not enough to pay what has been promised.

And Washington’s response has largely been to whistle in the dark, issue statements about “protecting Social Security,” and then carefully put the problem back in the drawer until after the next election.

We Know How to Fix It- There isn’t a magic solution, but there are several reasonable ones.

First, gradually raise the payroll-tax ceiling.
Why should someone earning $50,000 pay Social Security tax on every dollar while someone earning $500,000 stops paying after reaching the taxable maximum? Raising the ceiling would bring additional revenue into the system.

Second, slowly raise the full retirement age.
People are living considerably longer than when Social Security was created. That doesn’t mean throwing Grandma off the bus. It means gradually adjusting the rules for younger workers, while protecting those already retired or near retirement.

Third, make a modest increase in payroll contributions.
Nobody enjoys paying more taxes. But there is a big difference between paying a little more today and discovering later that promised benefits must suddenly be cut by roughly 22%.

The Trustees have repeatedly warned that delaying reform makes the eventual solution much more painful. That’s what happens when politicians keep kicking the can. Eventually, somebody trips over it.

What About Private Retirement Accounts? Here’s where the conversation gets interesting.

Suppose someone earning $52,000 a year could voluntarily elect to invest an amount equal to the full 12.4% Social Security payroll tax—employee and employer contributions combined. Those that want the current setup, can elect to stay with the current system.

Invested for 44 years at a hypothetical inflation adjusted 7% annual return like the SP 500 has achieved over the last 100 years, those contributions could grow to roughly $1.7 million. This is the miracle of compounded growth.

Compound interest is incredibly powerful when the money actually belongs to you.

A $1.4 million portfolio producing a hypothetical 5% annual withdrawal each year could provide approximately $70,000 a year. That sure beats the $24,000 a year under the current system at full retirement age. And unlike Social Security, a privately owned account could be inherited.
Your money wouldn’t simply vanish when you die.

The point is that Americans have spent decades paying into a system that doesn’t give them ownership of the underlying assets, nor a decent return on investment either.

The Real Problem Is Political Cowardice
The maddening part is that we know what needs to be done. None of this requires destroying Social Security. It requires courage, leadership and not playing political musical chairs.

Kicking the can down the road doesn’t make the can disappear. Lets embrace the process NOW, before it gets worse!