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Social Security is the bedrock entitlement program that directly supports over 56 million Americans. That’s over 18 percent of the population.
If you’re receiving Social Security, you know that Social Security benefits are modest. The average Social Security benefit is just $14,800 per year.
In other words, Social Security beneficiaries make just about as much as a full-time minimum wage worker.
With retirement savings low and private pensions hard to come by, that’s not much after a lifetime of work.
Social Security is the main source of income for the majority of American retirees, so it’s important that Social Security
The 2012 Social Security Trustees Report predicts that the Social Security retirement trust fund will run dry in 2035.
If Social Security retirement funds are used to make up shortfalls in the Social Security disability programs, that date moves up to 2033.
That’s hardly tomorrow, but it’s close enough to be worth worrying about.
By 2033 the accumulated trust funds will be used up, but the Social Security program will still have money coming in every year from Social Security taxes.
The Trustees estimate that these ongoing receipts will be enough to pay beneficiaries at 73 percent of full benefits in perpetuity.
So even if we do nothing, Social Security won’t disappear in 2033. It will continue, just at reduced benefit levels.
The tap won’t run dry. It’ll just run a little weak.
Put that way, the challenge of saving Social Security doesn’t look quite so daunting. Yes, we have to do something. But we have to do something that will top up benefit levels twenty years from now, not something to stave a complete collapse tomorrow.
One thing we could do is simply make up the projected 27 percent shortfall in Social Security benefits through general government spending.
At today’s prices, that would cost about $200 billion per year, or about 6 percent of the federal budget. That’s a lot, but not an unmanageable sum of money for the federal government. It could be done.
Another thing we would do is just raise the minimum wage.
Social Security is mainly funded by a flat tax on all wages up to $110,100 per year (going up to $113,700 in 2013). The more people earn, the more tax they pay (up to that level).
There are no deductions and no exemptions. Every additional dollar earned by poor and middle-income people translates directly into higher Social Security tax receipts.
Thus a doubling of the minimum wage from $7.25 to $14.50 an hour would result in a doubling of the Social Security taxes paid by minimum wage earners.
We have at least twenty years to rebuild the Social Security trust fund. If we raise minimum wages now, we can start rebuilding the fund now. Congress should put the minimum wage up a dollar a year every year for the next ten years, starting in 2013.
As with all retirement saving, the earlier you start the easier it is to meet your goals. Social Security taxes paid into the trust funds in 2013 will immediately start earning compound interest. By 2023 the Social Security crisis will be solved.
By 2033 we’ll probably be able to raise benefits a little, too.