Navigating Social Security's Future: From More Taxation or Seeing Its Elimination
Exploring All Options to Save Social Security, Including Tax Increases, Benefit Cuts, and a Potential Shift to Personal Retirement Accounts
How can we save Social Security? If you do not think it doesn’t need saving, just ask the SSA itself has an entire webpage citing why the path they are on is unsustainable. So, we can continue to stick our heads in the sand and wait for disaster or be proactive and bite the bullet with real solutions to this serious problem.
So, let’s look at what all the options are (even those I personally find unpalatable):
One is, we can increase the revenue flowing into the Social Security system. We can do this a few ways: by raising the payroll tax rate on all workers, expanding the taxable wage base by taxing earnings above the current threshold of $168,600, and/or taxing the benefits to those with incomes over $250,000. Those are the four main proposals for raising the revenue side of the equation.
Another way to go would be to reduce the benefits for those collecting Social Security. Some of those proposals are to adjust the benefit formula to make them less generous to high earners (like price indexing instead of wage indexing). Perhaps the most popular is to raise the retirement age since Americans are living longer gradually. The last would be to means test the benefits, so the wealthiest among us would not receive a social security check each month. All of these options would save social security billions each year.
The last conventional proposal is a hybrid system, where people can choose to stay with the traditional social security system or opt out of Personal Retirement Accounts (PRAs). This would involve individuals choosing to opt out would have their Social Security contributions redirected into a personal retirement account. Private financial institutions would manage these accounts under strict regulations to ensure security and transparency. Unlike an IRA, participants would not be able to pull out their money out, even for an emergency, nor borrow against it. This proposal would have a transition period.
Now, for better solutions that would reduce or eliminate government involvement in American’s retirement planning altogether. The following would emphasize and honor individual’s responsibility and freedoms:
One would be to phase out Social Security over time in favor for private retirement accounts, whereas social security taxes would still exist, but they would go into one’s personal retirement account, which would allow people to keep it in cash, stocks, ETFs, bonds, and other assets. And similar to the private side of the hybrid system I mentioned above, account holders would not be allowed to borrow against it or draw against it until retirement age.
Less palatable to many, would be in keeping with the personal responsibility and freedom theme by eliminating Social Security altogether, allowing people to invest, give to private charities, or spend what is now collected as the SSA tax. This would leave the poorest among us to rely on charities, families, and community groups when they fall on hard times in their senior years. These charities’ coffers may be boosted by voluntary donations since people would have must more in their paychecks to donate.
While libertarian solutions emphasize individual freedom and market efficiency, they also raise concerns about the welfare of those who might not save adequately for retirement or face unforeseen circumstances. Thus, any reform should balance these ideological positions with serious equity and economic stability considerations.
