Social Security was signed into law 75 years ago this month by President Franklin Delano Roosevelt. Today, it is the most important component of retirement security for most Americans. Unlike our damaged system of private pensions, Social Security is efficient, reliable and stable.
But rather than celebrate Social Security's successes at this milestone anniversary, many policy makers and much of the news media are focused on a different narrative. Social Security, they argue, is running out of money due to the impending retirement of millions of baby boomers. Social Security contributes to our ballooning national debt. We can't afford Social Security in its current form, and must scale back benefits.
This narrative is inaccurate, and it poses a serious threat to Americans' long-term retirement security.
While Social Security will require some modest adjustments to assure its long-term financial health, there is no imminent solvency crisis. Moreover, we should not be contemplating cuts in Social Security at a time when all the other pillars of retirement security have eroded to the point where many Americans won't be able to meet basic expenses in retirement. Instead, new revenue sources should be created to address Social Security's modest long-range solvency problem. And, rather than cut benefits, we should look at ways to enhance Social Security benefits for those who will need them most.
Consider these facts:
1. Two-thirds of Americans in the lowest pre-retirement income brackets will run out of the money they need to meet basic expenses within ten years of retirement, according to the respected non-partisan Employee Benefit Research Institute (EBRI); almost one-third of affluent Americans will run short after 10 to 20 years in retirement. Older boomers face the greatest risk, according to EBRI's research, but younger boomers and GenXers -- currently age 36 to 45 -- are on track to run out of money in retirement, too.
2. The value of private sector retirement plans plunged 19 percent in the ten-year period ending in 2008, according to Towers Watson, the employee benefits consulting firm, due mainly to the almost complete disappearance of traditional defined benefit pensions offered to employees by businesses.
3. We can afford to pay Social Security benefits without overwhelming our economy. Benefits are equal to 4.9 percent of gross domestic product (GDP) this year, and will rise to just 6.2 percent in 2035. After 2035, Social Security expenditures are projected to stay steady at that level of GDP through 2085.
4. Current benefits are modest -- but critical. The average retired-worker benefit is about $14,000 per year -- just a few thousand dollars above the official poverty guideline for an older single person. At the same time, Social Security provides an average of 40 percent of retirement income for the average American. The program keeps millions out of poverty, especially elderly women.
5. The Social Security Trust Fund is running a $2.5 trillion surplus that is headed toward a peak of $4.2 trillion in 2024, according to the Economic Policy Institute. That surplus was created as a result of the Social Security reforms of 1983, which included a substantial increase in payroll taxes levied on employers and employees, and a gradual increase in the retirement age from 65 to 67.
6. As boomers draw their Social Security checks in increasing numbers, the trust fund will be exhausted by 2035, according to the annual report of the Social Security Trustees, which was released last week earlier this month. At that point, absent any other changes, Social Security would have sufficient revenue to pay only 75 percent of projected benefit obligations -- hence the need to boost revenue or cut current benefits.
The claim that Social Security is running out money hinges, in part, on the program's shift into current-year deficit spending this year -- the program will take in fewer payroll tax dollars than it pays out. This change was long expected as boomers started to retire, but it came sooner than expected due to the severity of the recession, which cut into payroll tax collections and boosted the number of older unemployed workers filing for benefits.
The headlines about Social Security's red ink have helped those who worry -- rightly -- about our mounting national debt to conflate Social Security reform with deficit reduction. Social Security reform is at the top of the agenda of President Obama's National Commission on Fiscal Responsibility and Reform, and it's a favorite topic for deficit hawks such as Wall Streeter Pete Peterson, whose influential, well-funded foundation sponsored a national fiscal summit in June aimed at generating public discussion of the "tough choices" facing the nation on the budget.
These tough choices often seem to center on Social Security. Peterson and others like to argue that there is no real Social Security surplus, because the Trust Fund isn't sitting in some imaginary Social Security piggy bank. Instead the surplus is invested in a special type of Treasury bond. These are "full faith and credit" notes issued by the federal government -- no different than the bonds we sell to our creditors in China, for example.
Do deficit hawks really mean to suggest that the federal government should default on its promises to pay back the Social Security Trust Fund? Do they really mean to suggest that some portion of the payroll tax hike levied since 1983 for the express purpose of paying future Social Security benefits should be used to reduce the federal deficit?
The benefit reforms they recommend sound gradual and reasonable -- but they would produce unacceptable, large cuts in lifetime payouts to beneficiaries. One proposal calls for tweaking the formula for the annual Cost of Living Adjustment (COLA) -- one of Social Security's most important and valuable benefits. This change would have the greatest impact on older beneficiaries, since the reduction is cumulative over multiple years of benefits. A one percentage point reduction in the annual COLA now would reduce benefits over time so that a future 75-year-old would see an 11.9 percent cut in benefits, according to the Center for Economic and Policy Research
Another proposal calls for boosting (again) Social Security's full retirement age from 67 to 70. This sounds reasonable and perhaps even painless, since Americans are living longer and will be working longer, too. As a journalist and author focused on boomer retirement security, I advocate working longer wherever possible -- but it's easier said than done. The jobless rate for Americans over age 55 has jumped 339 percent since 2000, according to AARP. Workplace age discrimination is rampant. What's more, the suggestion that working longer is an appropriate solution for everyone is elitist and insensitive to the plight of older blue collar workers. It's one thing for lawyers and IT specialist to work into their late 60s, but quite another to tell someone who does physical labor -- or someone in ill health -- to toil away until age 70.
A higher retirement age is a cut in benefits, pure and simple. Raising the age to 70 would reduce monthly benefits by 19 percent," according to Social Security Works, an advocacy group. That kind of cut is not reasonable in light of our deteriorating retirement security. And it would come on top of benefit reductions already put in place by the 1983 reforms.
Since the Trust Fund will be sufficient to cover most of the boomer retirement wave, Social Security's viability and adequacy should be shored up for GenXers and the generations that follow.
New revenue sources should be identified to support the program. The possibilities include an increase in payroll taxes, raising the cap on earned income taxed for Social Security (currently set at $106,800) or tapping into a new revenue source, such as an estate tax or a tax on financial transactions.
And benefits should be enhanced for the beneficiaries who need help most. The National Academy of Social Insurance has outlined several good ideas for boosting Social Security's adequacy; these include a 5 percent increase in benefits for Americans over age 85, increasing benefits for widowed spouses, and increasing the current special minimum benefit for low-income workers to 125 percent of the poverty threshold.
A combination of new revenue and benefit improvements can keep Social Security viable for the future, and enhance the high value the program already delivers to Americans.
Follow Mark Miller on Twitter: www.twitter.com/RetireRevised
"The truth is that the Social Security Trust Fund has run surpluses for the last quarter century. Today’s $2.5 trillion cushion is projected to grow to $4 trillion in 2023. The nonpartisan Congressional Budget Office, experts in this area, say Social Security will be able to pay every nickel owed to every eligible beneficiary until 2039."
"While the critics profess concern about Social Security’s financial future, their fuzzy math ignores the fact that this highly successful program has not added a dime to our deficit. From the day when the first check landed in the Ludlow, Vt., mailbox of retired legal secretary Ida May Fuller on Jan. 31, 1940, Social Security has more than paid for itself."
"One of the worst ideas is privatization. After the greed and recklessness of Wall Street caused markets to collapse in 2008, does anyone still seriously believe it would be a good idea to turn the retirement security of millions of Americans over to Wall Street CEOs whose dishonesty and irresponsibility have no end?"
"Under the law today, the Social Security payroll tax is levied only on earnings up to $106,800 a year. That means millionaires and billionaires get off scot free on all of their income above that amount. In other words, an individual who earns $106,800 pays the same Social Security tax as a multimillionaire. That’s wrong."
Read more: http://www.politico.com/news/stories/0810/41628.html
How do you not see that that is not a surplus but debt??? We have spent that money, and we have not invested it in something that will give us a return plus our principle back. It is gone forever and we have to pay it back!
And please don't raise my taxes forcing me to plow more money into the lowest roi retirement investment I will ever make. I will have to live past 90 to see a 3% return on my social security contributions. The 12.4% of my pay that is confiscated requires me to save an additional 10% of my income for retirement above what would otherwise be necessary. That means a significantly decreased quality of life throughout my entire working life. I'm glad its there for our society, but for it is by far the most expensive (least efficient) insurance I will ever buy.
If this country has financed tax cuts for wealthy individuals and optional wars with the proceeds from those bonds then it has no recourse but to raise taxation to compensate the bondholders, the retirees. To not do so, or to cut benefits, or change qualification requirements, is technically a default on the bonds. That is something our government hasn't done in all of it's history including the time after WWII and the depression when the debt to GDP ratio was much higher than it is now. How will our other debtors view such a default? Won't our bond rating be effected by such a breech of contract?
The top earners of our country are the only ones who have benfited from the money placed into the Social Security fund by wage earners. They should be the ones who pony up the shortfall, and most of it should come from inheritance taxes on the largest estates. To put poor seniors in the street and cause that level of misery to protect the trust fund of some future GWB is unconscienable for a nation that perports greatness.
1. To all affected parties (that means everyone) save more!
2. Pensions were replaced generally speaking by 401k and 403bs.
3.A rise to 6.2 percent of GDP is significant. We should reduce that projection! (That means make cuts)
4. Retiring is not a right, it is earned. If you have have not accumulated enough wealth, then you do not get to retire. This means save more. If you are poor, then you are on welfare.
5. In 1983, the solution was to raise taxes and kick the can forward. I say no more taxes!
6. Boosting Revenue = raising taxes in one form or another. I vote to reduce benefits in a controlled manner, and allow youngsters to opt out.
"3. You're right. We should cut the imperialistic military that a succession of "conservative" administrations and congresses have built into a megalithic monster that rivals the total budgets of most countries, in spite of the fact that it is unconstitutional to maintain a standing army in peace (no "declared" war) time. We should also reevaluate the return on the "people's" resources that are sold in the forms of oil leases and coal mining leases by our government with an eye toward maximizing that return.
"4. Pure antisocial arrogance. You, individually, do not get to decide what is a right in our society. You can vote with your ballot or your feet, but not decide. What makes you think that welfare is somehow cheaper for society than Social Security? It's obvious that your "real" intention is the same as all conservatives. Eventually you can alter the welfare criteria and just let the seniors die.
5. See #4 Same BS.
"6. I vote to raise taxes on those who have benefited from RayGunomics and the Shrub's tax cuts over the last 30 years. My vote cancels out yours. I guess that makes your opinion, and mine, both moot.
4. You are correct, I do not get to decide what is or is not a right. We have a constitution and a bill of rights that clearly outline said rights. I am pretty sure within those documents it does not contain provisions for the right to retire. Moreover, it does not contain the language for said retirement to be financed by a compulsory annuity in which I have no ownership. Nor does it state that it is the right of some, through the monopolistic force of the state to confiscate the product of my labor. Is it arrogant of me, who practices thrift and saving to want to keep it? Or is it arrogant for some, through the voting process to procure benefits in which they did not earn? I do not think welfare is cheaper than SS. I know that they are both doomed to fail and live up to their original intents.
PS. I am not a "Conservative." I am a libertarian. And I do not believe I have the right to steal from others, unlike you.
So much passion on the right, with so little thought. Where did the adults in the GOP go to?
A little dramatic?
How about......And the poor, poor, pitiful poor want to assissinate the wealthy so they confiscate their assets to be used for their multitude of spending programs...
Good plan!! Have you thought about running for office? That platform might actually get you elected in this toxic political environment. We can always make more wealthy people. That's the easy part.
I'm curious. At what percentage of GDP would Social Security overwhelm our economy? 10%? 20%? 100%?
I also forgot to mention another "stable" feature of Social Security: the tax base. In addition to increasing the tax rate by 520%, the tax base has been increased by 135% (over inflation, of course). It seems to me that the only stable, reliable feature of Social Security is ever-increasing taxes.
I'm not really sure what you mean by "efficient". But as for reliable and stable... it's easy to win the game when you get to rig the rules. The rules used to be: you pay 2% of your income, you collect benefits at age 65. Now the rules are: you pay 12.4% of your income, you collect benefits at age 67. In other words, the Social Security tax rate has been increased 520% and benefits have been cut a la an increase in the retirement age. And now we need to raise taxes and/or cut benefits AGAIN? Yep, that's reliable and stable.
"Two-thirds of Americans in the lowest pre-retirement income brackets will run out of the money they need to meet basic expenses within ten years of retirement"
I have to wonder how well off those Americans would be had they been allowed to invest their Social Security dollars...
"The value of private sector retirement plans plunged 19 percent in the ten-year period ending in 2008"
Professor Shiller's data suggests it's more like 2%, but that's neither here nor there. Comparing Social Security to a 10-year private investment is intellectually dishonest. Social Security is a 35-year prospect - MINIMUM. It's really more like a 65-year prospect (the life expectancy of an 18-year-old).
Is this country's government working only for the millionaires? If so, why?
And while we are at it, why does it seem that the Republican Party is always arguing for what benefits the millionaires, and against what is good for the average person?
I have a way to fix this.
1. Remove the restriction on how much you can make and not have your check reduced
2. If you transfer the funds into an IRA the SS benefits are not taxed no matter how much you make.
3, Allow people to start drawing their SS benefits at age 60, with further reduced benefits.
4 Let people into Medicare when they start drawing SS benefits.
I believe that making these changes to the SS system would solve all of the problems we currently face. the only other change I would make is to make the first $106800 anyone makes subject to the 7% personal SS tax.
“There are no stocks or bonds or real estate in the trust fund. It holds nothing of real value to draw down.”-- David Walker, Comptroller General of the GAO, January 21, 2005
“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”-- Summary of the 2009 Social Security Trustees Report
" the surplus is invested in a special type of Treasury bond. These are "full faith and credit" notes issued by the federal government -- no different than the bonds we sell to our creditors in China, for example."--Mark Miller, August 27, 2010
In the early 1980s, Dr. Barry Marshall, an Australian physician, discovered a link betwee a certain bacteria andpeptic ulcers which led him to the discovery that ulcers could be cured with antibiotics. But, since medical students had been taught for decades that ulcers were caused by excess stomach acid, and treatment of stomach acid had become a big business, there was much organized resistance to Dr. Marshall’s findings. In 1998, by which time his treatment for ulcers had become almost universally accepted, Dr. Marshall was quoted as saying, “Everyone was against me, but I knew I was right.” During the delay in accepting the truth about ulcers, many patients suffered needlessly, and some even died, from an ailment for which a cure had been found.
Harry Markopolos had been trying to expose Bernie Madoff’s fraud for nine years before Madoff was finally arrested. But the SEC was not interested. Had the SEC listened to Markopolos in 1999, thousands of individuals and organization would have avoided being swindled out of billions of dollars.
Similarly, I have been pleading with the American public to demand an end to the raiding of Social Security since I appeared on CNN on September 27, 2000. During the ten years that I have been trying to alert the public to the scam, an additional $1.5 trillion of Social Security money, which is now needed to pay benefits to baby boomers, has been embezzled and spent.
So many people refer to LBJ as the cause of the missing revenue. LBJ did change the budget procedure so that Social Security surpluses could have been looted if any existed, but there were almost no Social Security surpluses until passage of the payroll tax hike of 1983. In most previous years Social Security usually ran tiny deficits in some years and tiny surpluses in other years. But there was never any significant Social Security surplus prior to the 1983 payroll tax hike. I'm sure LBJ would have looted every dollar he could get his hands on, but there was almost no surplus during his presidency.
“Let me show you in two different ways how useless the fund is. The first is a quote from the introduction to the 2009 Social Security trustees report, the second is the graphic by my Fortune colleague Robert Dominguez that accompanies this article.
Allen Smith, economics professor emeritus at Eastern Illinois University and author of "The Big Lie: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse," spotted the 2009 quote, and it is telling.
It says: , "Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public."
In other words, the trust fund is of no economic value.”
I began an email correspondence with Allan Sloan about Social Security in 2004 when my book, "The Looting of Social Security," was first released. (That book was pulled from the market.)
Allan has for a long time seen the Social Security trust fund differently from most journalists. He has finally become convinced that what I have been saying about the trust fund for the past decade is true. I very much appreciate Allan Sloan's support as I continue to try to help save Social Security by educating the public.
This statement would have been true if the $2.54 trillion had been saved and invested as it was supposed to be. When Social Security begins to run permanent deficits in 2016, the trustees would have been able to supplement the inadequate payroll tax revenue with funds withdrawn from the accumulated assets in the trust fund, and full benefits could have been paid until at least 2037. But, since the surplus money has all been embezzled and spent on other programs, there are no assets in the trust fund to draw down. We were told that by the GAO more than five years ago. On January 21, 2005, David Walker, Comptroller General of the U.S. Government Accountability Office, said, "There are no stocks or bonds or real estate in the trust fund, It has nothing of real value to draw down."
On April 5, 2005, President George W. Bush confirmed the GAO's assessment. In a speech at Parkersburg, WV, Bush said, "There is no trust fund, just IOUs that I saw first hand that future generations will pay--will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs." Bush made this statement when his campaign to partially privatize Social Security was not going well and he was desparate to convince the public that the program was in trouble. Nevertheless, Bush's statement is true.