Social security

Social security is and always has been slanted toward the poor. Benefits are based on life time earnings. If I earned an average of $12,000 per year my benefit would be $500 per month and if you earned an average of $50,000 per year your benefit would be $1,500 per month. In other words you paid in 4 times more than I did but your benefit is only 3 times more. I point this out because one of the suggested ways to strengthen the program is called means testing which means that your benefit will be adjusted based on your other income. Right now there are more than 4 million windows receiving less than $800 per month and on the other end of the scale there are 50,000 with incomes over one million who receive the maximum benefit of over $2,000.
It has been suggested that social security benefits be phased out for higher income people. For single people with income of $100,000 the benefit would be reduced by 20% for each $10,000 above that so by $150,000 there would be no benefit. For couples it would be phased out between $150,000 and $200,000.
Since most of the 750 billion paid out by social security goes to those in the under $100,000 group the annual savings is estimated to be one percent or about 7 billion.
While it is popular to say that Warren Buffett doesn’t need his social security taking it away doesn’t help that much.
Currently we collect payroll tax on the first $106,000 of earnings. If we collected on all earnings but froze the benefits at the current maximums this would go a long way to solving the problem. If we add to that, increasing the retirement age gradually to age 72 this would solve the problem completely. Realize that you can still retire at age 62 but at a lesser amount.
That remark about age 62 benefits needs further explanation. I spent 25 years as a financial planner specializing in retirement planning which means I spent a lot of time explaining social security benefits to people. I can tell you that most people have very little understanding of this program including benefits. Prior to 1983 the full retirement age was 65 and you could retire early at age 62 with 80% of your full benefit. Today the full retirement age is 67 and you can retire at 62 with 75% of your full benefit. This change is not causing much of a stir since most people don’t know that their benefit should be. For example if your full retirement benefit is $2,000 per month your age 62 benefit has decreased from $1,600 to $1,500. If the retirement age is raised gradually to 72 the age 62 benefit will decrease to $1,200.