Please ensure Javascript is enabled for purposes of website accessibility

Here's How Bernie Sanders Plans to Save Social Security

By Maurie Backman - Feb 21, 2016 at 6:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hint: The rich may not like it.

Source: Flickr user Phil Roeders.

For years, financial pundits and politicians alike have been predicting the demise of Social Security -- or at least the Social Security we've come to know. And while some of this doomsaying has been speculative at best, the Social Security Administration itself has revealed that the funds used to pay benefits are likely to be depleted by 2034, which means that today's 49-year-olds may not have access to full benefits once they reach their full retirement age.

Back in the day, Social Security's pay-as-you-go system seemed like a reasonable idea. People would pay into the system, recipients would collect their benefits, and the program's trust fund would continue to sustain itself through a seemingly perpetual cycle of money in, money out, and repeat. And while those trust fund dollars are invested in slow-growing U.S. Treasury securities to help grow that pot, Social Security relies heavily on incoming taxes to stay afloat for the long haul. The problem these days is that our workforce isn't what it used to be. Americans are having fewer children, and our life expectancies are increasing. Baby boomers are retiring en masse, and we don't have enough people joining the workforce to make up for such a huge draw on Social Security's funds. As a result, there's more money coming out of the system than there is flowing in, which is why that once-ample trust fund is rapidly shrinking.

It's clear that the program needs an intervention. And Vermont Senator and Democratic presidential candidate Bernie Sanders has a plan.

Lifting the cap on taxable income
At a time when many are quick to write off Social Security as a lost cause, Sanders is intent on expanding Social Security to ensure that those who rely on benefits can retire in a reasonably comfortable, dignified fashion. To achieve this goal and promote the long-term sustainability of Social Security, Sanders wants to lift the payroll tax cap so that more money filters into the system.

For years, there's been a cap on income that's taxable for Social Security purposes. As of 2016, any earnings above $118,500 are not subject to Social Security taxes, which means that someone making $5 million a year will pay the same amount into Social Security as a person making just $120,000. Sanders is seeking to remove the payroll tax cap on all income above $250,000, including unearned income such as capital gains and dividends. Though this move would only impact the top 1.5% of earners in the country, the additional amounts collected would theoretically be enough to sustain full benefits and keep the Social Security trust fund solvent for the next 50 years.

Expanding benefits for those who need them
Sanders' goal is not only to preserve Social Security, but to expand it so that those receiving benefits see an increase of roughly $65 a month. That may not seem like much, but for retirees on a fixed income, every little bit makes a difference. Sanders also wants to see cost-of-living adjustments rise to better keep pace with inflation and rising expenses for retirees. Though living expenses for seniors have risen approximately 84% over the past 15 years, cost-of-living adjustments have failed to compensate, amounting to just a 41% rise in Social Security payments for beneficiaries. Sanders' plan is focused on ensuring a reasonably strong quality of life for low-income individuals, particularly those for whom Social Security is a primary source of income.

With several (Republican) candidates looking to cut Social Security benefits, Sanders' stance on Social Security may indeed be enough to sway voters his way. Of course, those in the top 1.5% of earners may not be quite as thrilled with his plan, but that's the beauty of democracy: No matter how much or how little you earn, your vote counts equally.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.