As Huffington Post reported last week, AARP is planning a "salon style" invitation-only gathering in Washington later this month. In this DailyFinance exclusive, two retirement experts propose dramatically different solutions to the Social Security crisis. Below, Dan Caplinger weighs in. Click here to read Chuck Saletta's take on the topic.
Everyone's predicting the worst for Social Security. But should the threat of cuts that are still a quarter-century away really have people in a panic today?
Apparently, some members of the AARP think so.
AARP created a big controversy last year when it appeared to open the door to a "grand bargain" that would trade current benefits for a more secure program going forward. Now, as Huffington Post reported last week, the membership organization is planning a "salon style" gathering in Washington later this month, which several proponents of cuts to Social Security will attend.
But if I were invited to that gala event, I'd suggest that a grand overhaul is overkill. A better idea is to leave the program mostly unchanged.
All that is really needed to fix the problem are some simple tweaks that would improve the program's sustainability going forward while leaving it mostly unchanged for those who receive benefits now.
But even amid the gloom-and-doom mentality, there are some things to be optimistic about:
Younger workers are already planning for Social Security not to be there when they retire. Last year, a poll revealed that half of those ages 18 to 29 don't think Social Security will exist at all by the time they retire. Only 5% think it will pay the same benefit levels it does today. Past polls have shown similar skepticism among those of all ages. That realistic sentiment makes it more likely that they'll be able to handle a reduction in Social Security benefits.
Demographically, the crisis in Social Security won't last forever. The coming retirement of the baby boomers will be the point of maximum stress to the system. Once the less numerous generation after the boomers comes through, a more populous millennial generation will be better able to support the program. Stopgap measures to get through the tough times could be easier to accomplish than a full-scale revamp of the program.
Finally, despite the trend of cutting payroll taxes, small upward adjustments to tax rates or wage thresholds remain viable options at any point. Increasing revenue could resolve problems without major changes.
Compared to such minor tweaks, some of the more extreme proposals open to debate seem like a gross overreaction. For instance, as colleague Chuck Saletta notes in his piece about fixing the problem, the nation of Chile uses a format similar to the private-account idea proposed in the U.S. in the past. Similarly, the Thrift Savings Plan gives government workers a number of smart investment choices to let their retirement savings grow.
Those programs have their upsides, especially when those investment choices perform well. But the advantage of Social Security is its guaranteed payment feature -- something that most workers no longer get from traditional employer pensions or other sources. And after a decade of bad performance from the stock market, no one's going to get too excited over the prospect of gambling away their last bastion of retirement financial security.
The Answer: Stay the Course
It's natural to want to take action to save something as important as Social Security. But even in the face of what looks like a big problem, drastic measures aren't always the best. By preserving the basics of Social Security rather than scrapping it in favor of a completely different program, the government stands the best chance of an orderly transition to a more economically sustainable method of giving retirees the financial stability they so badly need.
Click here to read Chuck Saletta's take on the topic.
Apps to Make You Smarter With Money
Social Security -- It Ain't Broke, So Don't Break It
Does it feel like you're getting your pockets picked on a regular basis? Odds are you're the one doing the picking -- and it may simply be a matter of spending more than you think you are.
Mint.com will show you where the holes are in your pocketbook by pulling all of your accounts into one place to give you an overview of your spending habits. Owned by Intuit (INTU), the makers of TurboTax and countless other financial software, the site allows for goal-setting and helps identify ways you might save money. The site is ad-supported, but ads are discreet, relevant, and significantly less annoying than on other budgeting sites. The mobile app is a lighter version of the site, but it's a great companion resource for spending on the go.
Tip: Look for Mint to integrate with Weave, Intuit's new nifty project-management app, and TurboTax in the future.
App available for: iPad, iPhone, Android
Ever argue with your spouse or roommate about their free-spending ways? Or create a budget only to find you're the only one sticking to it? Of course not. But maybe you've been on the other side of that conversation. If so, check out HomeBudget with Sync.
HomeBudget with Sync is a fairly straightforward household budgeting tool that comes in both free and full versions. A key feature of this app is its ability to sync among household members and various devices to create a consolidated budget. Unlike Mint, entering bank-account information is optional.
Tip: the free version is limited to 10 expense entries and five income entries. If you like it, you may find the $4.99 price tag for the full version worthwhile.
Available for: iPhone, iPad
One of the best apps for investors comes from Bloomberg. It features news, market data, and portfolio tracking. Charts and graphs illustrate business trends and analyze world markets by industry, region, and popularity. Check out a stock's performance and key statistics from the past five years. And (shameless plug alert!) for commentary and analysis on the day's breaking news, use The Motley Fool's app.
Tip: Don't turn these on before cocktail parties. You'll spend the evening in the corner with your phone, not talking to anyone. Or, do turn them on and wow the room with your insightful stock market musings.
These apps won't let you file an insurance claim, dispute fraudulent credit card charges, or make a trade, but apps from your banks, brokerages, and insurance companies might. Check each of the companies with which you do business for full-service apps, but don't stop there. Many bank and brokerage apps offer features even for non-members.
Tip: Check out video reviews of apps on YouTube before downloading to see whether the features are relevant to your needs.
While these apps may be rich in features, not a single one of them has the ability to knock a $4 latte out of your hand or break your addiction to penny stocks. But by using your smart device to track your spending, saving, investing, and other financial housekeeping issues, you'll be making smarter decisions with your money in no time.