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FACT SHEET: Reforms To Ensure A Secure Retirement For 21st Century Seniors
OPEN THE FEDERAL THRIFT SAVINGS PLAN TO THE AMERICAN PEOPLE
Rubio: “[T]he twisted irony is that members of Congress – who are employees of the citizens of the United States – have access to a superior savings plan, while many of their employers – the American people – are often left with access to no plan at all.”
- THE CHALLENGE: The best way for Americans to guarantee security in retirement is to gradually build a nest egg of savings. Yet 36% of Americans have less than $1,000 saved up for retirement – many of them with nothing saved at all. 75 million working Americans do not have access to a retirement plan.
- THE SOLUTION: Members of Congress and other federal employees have access to a retirement savings and investment plan called the Thrift Savings Plan, or “TSP,” which is analogous to a traditional employer-sponsored 401K. It is one of the most efficient savings plans in America today, with shockingly low costs and high rates of return. The federal Thrift Savings Plan should be made an option for those who do not have access to an employer sponsored plan.
- Matching funds would not be available to those who are not federal employees.
- The changes necessary to accommodate the American people into the TSP would be primarily administrative. The same infrastructure would continue to be used. The change would be the size of the funds and the size of the support and administrative staff necessary to supervise it.
ELIMINATE SOCIAL SECURITY PAYROLL TAX
Rubio: “[W]e need to ensure that older workers have the ability to work as long as they need or want without being punished for it.”
- THE CHALLENGE: As the tax code is currently written, those who keep working past retirement age continue to pay Social Security taxes while receiving almost no extra benefits in return. This encourages some seniors to quit the workforce before they would otherwise.
- THE SOLUTION: Rubio: “In order to remove this disincentive to work, we should eliminate the 12.4% Social Security payroll tax for all individuals who have reached retirement age. These seniors have already paid their fair share, and we shouldn’t punish them for choosing to keep working rather than immediately cashing in. … And it could also make older workers more attractive to employers, since the employer’s half of workers’ payroll taxes would also be eliminated.”
- Eliminating this tax will also help seniors accelerate their savings by letting them keep more of their money.
- It could make older workers more attractive to employers, since the employer’s half of workers’ payroll taxes would also be eliminated.
- Eliminating the Social Security payroll tax for seniors will likely result in older Americans choosing to work longer, which in turn will lead to an increase in federal income tax revenue.
- Seniors who choose to keep working will improve their personal retirement security and decrease their dependency on federal assistance programs.
ELIMINATE THE RETIREMENT EARNINGS TEST
- THE CHALLENGE: Those who choose to claim their benefits early while they continue to work are subject to what’s called the Retirement Earnings Test. Under this test, benefits are reduced approximately 50 cents for every dollar a person between the ages of 62 to 65 earns in excess of $15,000 a year.
- THE SOLUTION: Rubio: “We should eliminate this test altogether. One economist estimates that abolishing the Retirement Earnings Test would raise employment among early retirees by 5.3%, a significant increase for a reform that has no long-term budgetary cost.”
RAISE SOCIAL SECURITY RETIREMENT AGE FOR YOUNGER WORKERS, NOT THOSE NEAR RETIREMENT
- THE CHALLENGE: Life expectancy has risen enormously since the passage of Social Security, but the basic benefit rules have failed to adjust accordingly. If you turned 21 in 1940, your chances of living to retirement age were only about 55 to 60 percent. But if you turned 21 today, your chances are around 80%. This means we have more beneficiaries than ever for Social Security. And these beneficiaries, on average, are living another five to ten years longer than Social Security’s earliest recipients. This has set Social Security on a path toward insolvency.
- THE SOLUTION: Rubio: “The answer is to gradually increase the retirement age for future retirees to account for the rise in life expectancy. And if we act soon, we can do this without changing the retirement age for people who are currently over the age of 55.”
REFORM METHOD FOR CALCULATING INITIAL BENEFITS
Rubio: “When my parents retired, they didn’t have a nest egg of savings to rely upon. They leaned on Social Security to help them through – in fact, my mom still does. We need to make sure that seniors like my parents – who worked low wage jobs their whole lives – aren’t consigned to poverty in old age.”
- THE CHALLENGE: Many low-income seniors rely exclusively on Social Security, but find themselves barely above the poverty line. They need higher benefits in order to have a secure retirement, yet raising benefits for all seniors would put too much strain on the Social Security trust fund.
- THE SOLUTION: Rubio: “The answer is to reduce the growth of benefits for these upper income seniors while making the program even stronger for lower income seniors. This isn’t a cut, it’s simply a reduction in how fast the benefit will increase for wealthier retirees. Doing this will add years to Social Security’s solvency. It is one of the best ways to save the program for high-income and low-income beneficiaries alike.”
TRANSITION MEDICARE TO A PREMIUM SUPPORT SYSTEM
Rubio: “When it comes to a broad and comprehensive Medicare reform plan, let’s learn from the mistakes of ObamaCare and the successes of programs such as Medicare Advantage and Medicare Part D. Let’s dramatically expand health care choices for seniors, spur competition in the marketplace and extend the solvency of the Medicare trust fund – all while making sure traditional Medicare remains an option.”
- THE CHALLENGE: Rubio: “Medicare hospital insurance will go bankrupt in about 12 years and cease to exist. Again, this is not a scare tactic, it is simple math. In 2012, Medicare spending grew by 4.6 percent – to about $580 billion. And between now and 2022, this growth rate is expected to accelerate to around 7.4 percent per year. By 2026, the Medicare trust fund will run dry.”
- THE SOLUTION: Rubio: “I propose we transition to a premium support system, which would give seniors a generous but fixed amount of money with which to purchase health insurance from either Medicare or a private provider. The choice would be theirs to make.”
- The government contribution would be fastened to either traditional Medicare or the average bid — whichever is cheapest. This way, if seniors choose plans that cost more than that benchmark, they would have to pay the difference. If they choose cheaper plans, they would get to keep the savings.