Let’s Examine Lawmaker’s ‘Big Idea’ for Social Security Solvency
Financial experts are warning that as soon as 2034 Social Security will not be able to pay full benefits to recipients. That is very concerning for the millions of older Americans relying on Social Security benefits for their retirement income.
The problem is that the Social Security trust fund is paying out more money than it is taking in because more aging Baby Boomers are entering retirement than younger folks are entering the workforce.
Making matters worse, according to Bankrate.com, “Traditionally, the Social Security trust fund — where our payroll taxes go every two weeks — has been invested in Treasury bills or cash, which are safe and liquid, but which do not generate significant returns. Since the great financial crisis, Treasury yields have run below the rate of inflation, especially in the recent past, and well below the stock market’s historical returns.”
The Big Idea
United States Senator Bill Cassidy, (R-LA), is sponsoring a plan being dubbed the “Big Idea.”
Inspired by what private pension funds have done for years, which is using a market-based investment strategy, the Big Idea calls for creating a separate investment fund to participate in the market by investing in stocks or passive index funds. Cassidy believes this strategy would allow the fund to accrue returns over an extended period of time.
The biggest problem with this proposal is that the stock market is notoriously volatile. Social Security needs a stable source of funds to draw from as it pays out benefits each month. Retirees can’t afford to wait for their checks if the market is under performing.
A Better Idea
The Seniors Trust stands behind the Social Security Expansion Act introduced by U.S. Sen. Bernie Sanders (I-Vt.). Not only would it ensure the long-term solvency of Social Security, but it would also provide seniors with bigger benefits.
Under this bill, seniors would receive an extra $2,400 in benefits each year. To fund the proposed benefits boost and maintain solvency far into the future, the Social Security Expansion Act calls for applying the Social Security payroll tax on all income above $250,000. Currently, earnings above $160,200 aren’t subject to the Social Security tax.
If enacted, the Social Security Expansion Act could keep Social Security solvent for about 75 years, allowing it to pay full benefits as promised.
