Social Security is facing a big problem.
In eight years, the program will have only enough funds to send recipients 76% of their promised benefits. Imagine a retiree currently receiving $1,000 in monthly benefits suddenly getting just $760 per month.
That 24% cut in income would be devastating to many.
Senator Bill Cassidy (R-La) believes he has a way to fix this looming problem.
“We’ve come up with the ‘Big Idea’ that begins to address the issues of Social Security.”
Cassidy’s big idea involves the creation of a sovereign wealth fund—completely separate from existing Social Security funds—that would be dedicated to making Social Security financially sound again.
“The idea calls for…allowing the investment to earn returns over a period of 70 years,” Cassidy said in an interview.
Over this 70-year period, earnings from investments would be sufficient to fund the expected shortage in Social Security so that recipients would not have to see any reduction in their scheduled benefits.
Where would the money for creating the fund come from?
“We’ve got options,” Cassidy said. “We could sell government assets. Our government owns a lot of things that are just sitting there, doing nothing. Or we could raise taxes. Or we could borrow the money.”
Cassidy believes the last option to be the most likely solution.
The idea is that the earnings from the fund would outpace borrowing costs, such that Social Security funds could be sufficiently supplemented to pay all scheduled benefits and repay all borrowed costs over the 70-year period.
But what about the political implications? Elected officials have long considered Social Security the (electrified) “third rail” of politics. Conventional wisdom says, “Touch it and you die.” Why does Cassidy believe his proposal might experience a better outcome?
For one, the clock is ticking and there are no other viable plans.
Second, his proposal has provisions that are attractive to both sides of the aisle. For example:
Let them work. Cassidy proposes a repeal of retirement earnings tests. If you’re old enough to get Social Security benefits, you should be able to get them with no penalty even if you choose to keep working. The fact is, we need more people working, not less.
Give teachers back their Social Security. Currently most public-school teachers and state government employees are penalized for having participated in their respective pension plans, even if they have the required 40 quarters required by Social Security to receive benefits. Cassidy’s plan repeals these restrictions. Since both liberal states (e.g., California and Illinois) and conservative ones (e.g., Texas and Louisiana) have such penalties, his proposal might just find allies across party lines.
Keep the elderly out of poverty. Cassidy proposes an extra benefit for Social Security recipients over the age of 80 who are at or below the poverty level. This provision to keep older Americans from slipping through the cracks has widespread public support.
Let pastors back in. Many ordained clergy have been allowed to opt out of Social Security. Once out, they cannot come back in. This is a decision some have regretted as they have gotten older—especially upon realizing this decision keeps them out of Medicare too. Cassidy’s plan would allow pastors to buy back into Social Security and Medicare.
Cassidy is realistic and patient. But he’s also persistent. He’s mentioning this policy proposal every chance he gets. It’s a message he delivered earlier this year to the National Institute on Retirement Security’s (NIRS) 15th Annual Retirement Policy Conference, in a public forum with AARP, and in numerous national news outlets.
And he brought it up again at a recent event hosted on the Louisiana Tech University campus.
“Our real commitment is that Americans get their promised benefits,” Cassidy said.
With a looming shortage of both funds and solutions, it will be interesting to see if Bill Cassidy’s “Big Idea” catches fire.
Meanwhile, Congress addresses those issues, I’ve got a free tool that can help you figure out the best way to turn your retirement assets into regular retirement income. It’s called the RISA (which stands for Retirement Income Strategy Assessment). The RISA is designed to help you determine what kind of income plan best aligns with your personality and lifestyle. The quiz takes less than ten minutes. There’s no obligation, and you can access it by emailing me (bmoore@argentadvisors.com).
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