Tea Leaf by Jeff Thredgold

A number of media stories have appeared in recent weeks discussing the fact that Social Security payments now exceed the inflow of funds into the system…and years sooner than expected.  Note: one more impact of the Great Recession, as millions of lost jobs reduced Social Security tax inflows.

The stories point out that Social Security will now begin to draw from the $2.5 trillion Trust Fund that has built up rapidly during the past 2-3 decades, as revenues exceeded payouts.  Many of the stories also point out that this Trust Fund is largely mythical, as the U.S. Congress routinely spent these excess funds each year and replaced them with government IOUs.  Nevertheless, there is no question that the Trust Fund will be “honored” by the Congress as a means to supplement Social Security in coming years.

Many of these articles make recommendations as to how to “fix” Social Security for coming generations, noting the projected $5.3 trillion funding shortfall over the next 75 years.  Some of the more radical proposals suggest raising withholding taxes from the current 6.2% rate applied against the first $106,800 of income (matched by the employer) to a higher level such as 6.6% or 7.3%, or simply taxing higher incomes by abolishing the current cap of $106,800.

Others suggest stretching out the retirement age further for when younger people can draw partial or full benefits.  In reality, a combination of modest adjustments made sooner rather than later would address the problem.

Noted below are our recommendations to address the future of Social Security as discussed in our book econAmerica, released three years ago by major publisher Wiley & Sons…

Tinkering Around the Edges

What the Social Security program requires is some “tinkering around the edges” to make the program financially viable for future generations when funding pressures are more painful. These changes will require bipartisan cooperation.

My parents both draw Social Security. I tell them they have nothing to worry about relative to Social Security viability in their lifetimes. As a Boomer, I will not draw full benefits until age 66 (younger boomers age 67).  I tell my married kids that Social Security will be there for them, but not to plan on drawing it until they are 68 or 69 years of age.

I favor proposals that stretch out the retirement age for younger people. This change reflects the reality that younger people will be able to work longer if they wish, will live longer and will, correspondingly, draw Social Security payments longer.

A minor change in the inflation calculation used to determine initial benefit payments for higher-income earners is desirable. Such higher-income workers would have their future payment schedule inflation-adjusted by the change in consumer prices. Lower-income workers could continue to have initial payment levels inflation-adjusted by the average annual growth in wages, resulting in their getting a slightly better deal in the future than higher-income workers.

I would suggest a slightly faster boost in wages subject to current taxation. For example, the annual adjustment to the wage cap might be the change in consumer prices (current law) plus an additional 1 percent each year during the next decade.

Providing greater incentives for people to save for retirement is advisable. Additional or expanded programs like the 401(k) would help minimize the role played by Social Security for millions of future retirees.

In coming weeks we will look more at the broad entitlement issue that must be addressed by a (hopefully) responsible Congress.

Mostly Music

For a number of years now, my bride of nearly 25 years, violinist and recording artist Lynnette Thredgold, has joined me on stage for a program we call Money & Music (moneyandmusic.net).  Below is a testimonial letter regarding a recent event that included the Money & Music program, a separate economic update by me, and a concert by Lynnette.

Whether appearing with her six-piece band or as a solo artist, Lynnette is a gifted musician and dynamic performer. She plays a wide range of music (pop, classical, Latin, blues and jazz) and has performed with such artists as Mannheim Steamroller, Josh Groban, and Led Zeppelin’s Robert Plant and Jimmy Page (visit lynnette.com for more about Lynnette.)

Home Concerts

This year Lynnette has teamed up with pianist Jed Moss, who spent 14 years with Air Supply, to present their stunning music in the casual, intimate setting of private living rooms.  These “home concerts” have been a major hit with audiences.  Here are a few recent comments from audience members and hosts:

“They are not only marvelous musicians but they are also very wonderful entertainers!”

“I could not believe what I was hearing, right here in my own living room!”

“Thank you for the invite to the neighborhood get together Saturday night.  I enjoyed it very much. Thank Lynnette and Jed for sharing their talents.  My wife and I would like to consider hosting such an event as a fund raiser for cystic fibrosis.”

“I need to host a concert so I can introduce Lynnette and Jed and their music to my family and friends.  They would go crazy over this!  How do I book a concert?”

Discount Pricing

Are you planning an event and looking to hire a speaker or entertainer?  Mention the Tea Leaf and receive a 15% discount on any program by Jeff or Lynnette Thredgold, including home concerts.

Click on image to open full-size letter