AARP suggestions to save Social Security

As you approach your 50th birthday, you will start receiving mail from
the American Association of Retired People (AARP). I think it’s a good
deal, if only for the publications.

The latest monthly Bulletin describes 9, nine, count them NINE proposals
to save the solvency of social security. This in spite of accusations by
USA Next that AARP is “the bolder in the middle of the highway to
personal savings accounts”

Interestingly enough USA Next describes itself as a 1.5 million +
nationwide grassroots effort”, yet it’s tax return for the year shows
income of 25.3 million; 24.8 million from a single unidentified
contributor. (kind of makes me go Hummmmmm)

Anyhow the proposals are as follows – no one will work, some combination
will be needed to keep SS solvent and closely resembling what we have now.

The proposals

1) Raise the cap on earnings. Next year it will be on earnings up to
90K/yr – raise it slowly as average earnings increase. This will affect
only about 6% of taxpayers at present, but cut the projected shortfall
by 32%

2) Increase the payroll tax rate. Gradually increase workers (and
matching employers) taxes from 12.4% to 15% over 70 years. Estimated tax
increase could eliminate 100% of the shortfall

3) Raise taxation of Benefits. Higher income beneficiaries would make a
greater contribution. (Did you know that income taxes on SS benefits are
paid directly to the fund?)

4) Preserve SOME of the estate Tax and dedicate it to SS. Tax only
estates valued at 3.5 Million or more (7 Million for a couple). At this
rate only about ½ of 1% of estates would be taxed, but would reduce the
projected shortfall by 27%

5) Make SS Universal – About 30% of State and local government workers
are not covered by SS. Making SS universal would reduce the shortfall by 10%

6) Invest SOME of the trust fund in Indexed funds. Be a lot less
expensive than individual accounts, and the government would be better
able to ride out short term market declines.

7) Adjust the COLA – change from the current Consumer Price Index to a
newer (supposedly more accurate one) developed by the bureau of Labor
statistics) This would produce lower COLAs (Suggestion by Jim – Tailor a
retired CPI reflecting increased Medical costs)

8) Raise the retirement age to 70 – currently on the way to 67. Still
allow retirement at 62 with proportionately reduced benefits. Life
expectancy has increased, why not working life? This will reduce the
shortfall by about 36%

9) Index benefits to prices, not wages.

Note – the above is very much abbreviated and taken from he April 2005
edition of the AARP Bulletin. If anyone is REALLY interested, send me
your email address, and I’ll scan the article and send it to you. The
pros and cons of each proposal are discussed in detail.