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Fixing Social Security: Everyone Needs to Pitch In

This expert says the old and the young need to be part of the solution

By Sylvester J. Schieber

One of the substantive issues that occasionally has arisen in the presidential debates is what to do about Social Security. Current revenues for the pension program do not cover the benefit payouts and the trust funds are projected to be depleted in 15 to 20 years. To their credit, most of the candidates realize that something has to be done soon or the problem could strike within the normal life expectancy of people retiring now.

The candidates have varying proposals (Democrats generally favor raising taxes; Republicans tend to call for raising the retirement age, adjusting Social Security’s cost-of-living index and — aside from Donald Trump and Mike Huckabee — gradually slowing benefits on higher-income people). But they all say that whatever they do, with the possible exception of a technical fix in the cost-of-living index, they would do nothing that would affect benefits for those currently retired or nearing retirement.

Good Politics, Bad Policy

Given the number of people who are nearing retirement or in retirement and the fact that older Americans tend to vote at higher rates than younger ones, this position might be good politics. But it is an inequitable policy proposition.

As a 69-year-old who has paid into the Social Security system for five decades, I believe we are all in this together and that it is unfair to put all the burden of fixing Social Security onto younger workers and those not yet in the workforce.

Today, the economic prospects for future generations are no better than they are for many of us now in our 50s, 60s or older. In finding a way to rebalance Social Security financing, I strongly believe the current generation of older people (including me) should be part of the solution, so we do not unduly burden today’s younger workers and those to come.

Social Security Benefits Vs. Taxes Paid

The idea that people reaching retirement today have paid for their benefits is correct in a pure accounting or actuarial sense. The Social Security actuaries estimate that for a single male reaching age 65 last year with normal life expectancy and “medium earnings” over his lifetime, the lifetime value of his benefits at retirement would be 78 percent of the lifetime value of the taxes he’d paid on his earnings. For the single female, the return would be 88 percent of the taxes she paid — somewhat higher because women live longer, on average. Benefits for a two-earner couple are expected to be 90 percent of the value of their taxes.

Not only have many current retirees “paid for the benefits” they can expect to receive from Social Security, it has been an economically inefficient way to save for their retirement. But it does provide benefits that private retirement plans don’t, and no policymaker from either party would dare close Social Security, so we need to fix it.

Sharing the Burden Fairly


Because Social Security benefit payouts exceed taxes being collected, we have to either reduce the payouts, increase the revenues or do some combination of the two. None of the options will be pleasant for the people affected. That’s why, to the extent that our policy choices will impose an adverse outcome on those affected, the burden should be fairly shared.

Since many retirees and those approaching retirement have much higher incomes, and hold a great deal more wealth, than younger generations, those of us who can help solve this problem should.

I am not proposing draconian cuts on anyone. The sort of thing I have in mind is that Congress limit all future Social Security cost of living adjustments for benefits of those with high incomes.

I support full adjustment for inflation for those whose benefits are at the median or less — somewhere around $15,000 per year now. But I do not believe we need to give inflation adjustments beyond this amount to those with higher benefits; some Social Security beneficiaries are now getting $40,000 per year.

In addition, I propose that all Social Security benefits be subject to the income tax. Under this proposal, low-income beneficiaries would not be affected, but those with higher incomes would pay slightly more in taxes.

These changes by themselves would not fully solve the Social Security financing problems we face. In combination with some of the things the presidential candidates are proposing that policymakers should negotiate, however, the problems we face can be solved and we will not have to lay off the full bill to coming generations.

This is a solution much fairer than what most politicians in both parties are suggesting today. And it’s the right thing to do.

Sylvester J. Schieber is a leading retirement expert and consultant and the author of The Predictable Surprise: The Unraveling of the U.S. Retirement System. Schieber is the former chairman of the Social Security Advisory Board and was previously Director of Research and Director of North American Benefits Consulting at Watson Wyatt. Read More
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