Americans are worried about their retirement and there are plenty of risks stoking the gloom. Looked at your 401(k) lately? How about the value of your home? One risk in particular stands out: The widespread assumption that Social Security will go belly up. The thought is chilling, since Social Security and retirement security have been long synonymous.
Yet every time I get into a conversation with neighbors and colleagues about retirement, it seems that someone always says, with a sigh and a shrug, ‘Social Security won’t be there when I retire.”
They’re far from alone. When the pollster Gallup asked non-retired adults last April “Do you think the Social Security system will be able to pay you a benefit when you retire?” 60 percent said No, up from 41 percent a decade earlier. The most memorable recent moment in the Social-Security-is-bankrupt refrain came when Texas Gov. Rick Perry declared Social Security “a Ponzi scheme” and “a monstrous lie to our kids” during a Republican presidential debate.
The truth is this: Social Security isn’t a Ponzi scheme, a monstrous lie, or even in a crisis. I’m not saying the program shouldn’t be adjusted. There is a long-term funding gap that needs to be addressed, and the sooner the better. (I’ll get to some possible changes in a bit.) Yet there is almost no risk that Social Security won’t be there when the last of the boomers head into retirement.
Put it this way: The landmark 1935 legislation has evolved into the most successful social policy program in modern U.S. history. Instead of badmouthing it, the goal should be to make it an even stronger safety net for old age.
Despite the hyperventilated rhetoric over a Social Security crisis, I’m far from alone in taking a more positive view of its prospects. For instance, recent bi-partisan blue-chip proposals for dealing with the nation’s long-term federal debt and deficit are modest in their concerns.
Here’s how the plan put forward by Erskine Bowles, the former Clinton chief of staff, and Alan Simpson, the former Republican senator from Wyoming, describes the program: “Social Security is far more than just a retirement program — it is the keystone of the American social safety net, and it must be protected.”
And the sweeping budget overhaul sponsored by former Republican Senate Budget Committee Chairman Pete Domenici and Alice Rivlin, the White House budget director under President Clinton, describes the system this way: “Social Security is a defining piece of the social fabric and an incredibly successful program. It does not need to be fundamentally altered; rather, it needs only modest adjustments so that it can continue to serve as a financial foundation for millions of retirees, survivors and disabled workers across the country.”
Doesn’t sound like the experts believe Social Security is in a crisis, does it?
Any changes in the program are unlikely to affect those who are currently 55 and older.
For example, Simpson-Bowles recommends boosting the Social Security retirement age to 69 by 2075. Well, any surviving boomers at that point would be celebrating their 111th birthday.
Wisconsin Republican Congressman Paul Ryan, a leading conservative voice for overhauling Social Security overhaul, writes in his signature blueprint, A Roadmap for America’s Future that “Individuals 55 and older will remain in the current system and will not be affected by this proposal in any way.”
The numbers don’t scream bankruptcy even if nothing is done. The 2011 Trustees report for the Social Security System estimates that the program’s reserves will be exhausted in 2036. That’s hardly reassuring news for any 43-year-old reaching the scheduled retirement age of 67 in 2036. However, the system will still have enough revenue coming in to pay 77 percent of legislated benefits after that date.
I’m not saying that’s a desirable outcome. It isn’t. But the numbers say the financial status of Social Security is far from a doomsday prophesy.
The problem is clearly manageable. One way to deal with the funding gap – adjusting the amount of income subject to the Social Security payroll tax — shows how misleading the disaster-in-waiting talk is.
The 1983 Social Security Commission headed by Alan Greenspan established that the Social Security payroll tax applies only to earnings up to a certain income ceiling. The cap was set so 91 percent of all earnings from jobs covered by the Social Security program would be below the ceiling. The cap is adjusted for inflation and for 2012 it’s $110,000.
However, the dramatic rise in income inequality since the early 1980s means that, today, only 83 percent of earnings are below the cap. Simply restoring the balance back to 90 percent would hike the 2012 cap to about $156,000. That move would push the date of trust fund exhaustion to 2050, according to the Congressional Budget Office. And increasingly the ceiling to $250,000 would extend the day of fiscal reckoning to 2077.
A tax increase equal to less than five percent of projected wage growth over the next three decades would put Social Security on sound financial footing well into the indefinite future, calculates Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.
What about the option of raising the age of retirement to 68 or even 70? It’s a popular talking point, but I’m wary. For one thing, raising the retirement age does surprisingly little to improve Social Security’s finances. For another, the resulting benefit cut—a one year raise in the retirement age is about a 6.6 percent benefit cut—will hit hardest the lower-income workers who labored in physically demanding jobs.
Similarly, I’m not a fan of suggestions to lower benefits by reducing the calculation used for making annual cost of living adjustments. The elderly face a higher inflation rate than the average family, largely because they spend more money on medicine and health related expenditures.
My goal is that we drop the “we can’t afford it” Social Security mindset and turn instead into figuring out ways to make the program even better. (Okay, hope springs eternal.)
The bottom line: Social Security is relatively easy to put on a sound footing once Washington decides to actually tackle the issue in good faith.
As the 18th century British conservative Edmund Burke wrote, “All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter." In the meantime, the next time a friend says he or she isn’t planning on getting any Social Security benefits after saying goodbye to colleagues for the last time, answer: “Yes you will.”
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- It’s Not Too Late to Save for Retirement
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