Start Paying Attention to Social Security - Whatever Your Age
Social Security retirement funds are rapidly approaching bankruptcy. Medicare, too. And some want to make it worse. Pay attention.
After the late Sen. Robert Dole (R-KS) passed away earlier this month, I visited YouTube to watch his Senate farewell address. He resigned from the Senate as Majority Leader and as the Senior Senator from Kansas on June 11, 1996. I had a front-row seat for his speech as Secretary of the Senate.
During that speech, Dole considered helping extend the solvency of Social Security, which teetered on the edge of bankruptcy in 1983, as his single most significant legislative achievement, among many. It was a bipartisan agreement that included reforms insisted by Republicans (phasing in the age to receive full retirement benefits, including mine) and tax hikes demanded by Democrats. It was signed into law by President Ronald Reagan, flanked by a happy bipartisan delegation from Congress, along with Treasury Secretary Don Regan.
There was even a side deal between congressional Democrats and Republicans not to attack each other in the upcoming elections over the rescue package, or provide support for those who do. Partisan attacks in prior years had prevented needed reforms. It led President Reagan to create a bipartisan commission that provided the basis for the legislation. It was a delicate dance that worked.
During Dole’s farewell address, he expressed satisfaction that Social Security would remain solvent until about 2029. He was prescient. That’s about the time that Social Security’s “old age” (OASDI, or Old Age, Survivors, and Disability Insurance) trust fund runs out of money again, forcing an estimated and immediate 20-25 percent reduction in benefits if Congress doesn’t act. The trust fund for Medicare, an insurance program for people over 65, may go bankrupt even sooner, forcing benefit cuts for that program as well, mainly in the form of reduced doctor and hospital reimbursements, which are already low. Imagine how that will work out for new retirees looking for a doctor.
For those of a certain age - raising my hand - we’re paying careful attention. An estimated 54.7 million Americans today are over age 65. A man retiring in 2020 (hand raised) can expect to live to age 84; women, age 87. The fastest-growing demographic in the US today? Those over 100 years of age. That means an estimated 6 million centenarians will have received Social Security checks for about 35 years by the year 2050 - almost as long as their entire working careers. On average, Americans will collect far more in Social Security benefits than they paid in over a 40 year career.
And who is paying into this “trust fund,” or in reality, a transfer program? Most anyone working. And the program is already spending more than it’s bringing in since 2018. Only about 2.5 workers are paying into the system for every beneficiary. It was nearly 4:1 about 50 years ago.
Enter Charles Blahous, a friend and former Social Security trustee who has been warning for years of the impending need for reforms. He and two colleagues recently penned a helpful and informative post on a recent proposal that would make the Social Security funding problem even worse.
Despite repeated warnings from Social Security's trustees that the program is facing a growing financial shortfall, lawmakers seem to have reached a bipartisan consensus to kick the can down the road. If they continue procrastinating until Social Security's trust funds near depletion in the 2030s, it will be impossible to save the program without abruptly cutting benefits for retirees or significantly reducing the lifetime incomes of young workers. Americans who rely on Social Security cannot afford to wait much longer for lawmakers to enact corrections.
Unfortunately, a new proposal that was the subject of a congressional hearing earlier this month, Social Security 2100: A Sacred Trust, moves in the wrong direction. It would worsen intergenerational inequities by providing substantial benefit increases for those becoming benefit-eligible in 2022-2026, while passing the costs to everyone else, especially young workers already getting the short end of the stick under current law. There is no justification for such discriminatory treatment. In fact, those who would receive the proposed windfall already benefit from superior treatment under current Social Security law, relative to those who would pay for it.
The Sacred Trust proposal would regressively increase benefits for upper-income individuals. It increases the rate at which benefits accrue, inflates cost-of-living adjustments, cuts taxes on benefits and allows double-dipping between Social Security and state-provided pensions. A previous budget score of similar provisions concluded they would disproportionately benefit high-income earners.
In theory, the proposal would fund these benefit increases by taxing earnings above $400,000. But the math only appears to work because new benefits are limited to people who claim benefits within a narrow five-year window, while tax increases would be permanent and paid by future workers. Taken at face value, this is an absurd policy; there is no rationale for raising benefits for those retiring in 2026 by more than 10 percent, but not for anyone retiring in 2027 or later.
Some have proposed changes to help make Social Security either more solvent or more available to younger workers. The result? Political punishment. Just ask George W. Bush. The consequence? There is a growing generational standoff between fed-up, often struggling younger workers and their parents (and grandparents. And great grandparents), and no incentive to address the impending crisis, other than to kick it down the road to a future Congress and President.
I was a young Capitol Hill staffer in 1983 for a freshman GOP congressman. I wrote extensively about the reforms that year for newsletters distributed to his northern Indiana constituents. What I learned made an enormous impression on me.
I learned that Social Security’s retirement age in 1935, when Franklin Roosevelt signed the program into law, was 65 - one year longer than average life expectancy then. I learned that Social Security was designed to supplement retirement income, not be the sole source as it is for 40 percent of seniors today. I knew that Social Security benefits have grown over the years to include Medicare, disability, and death benefits. And I learned Social Security’s wages had been indexed not to inflation but a higher wage index.
And the impetus for Social Security in the first place? To remove older people from the workforce to make way for young people. These days, given vacancies, there are plenty of opportunities, even incentives, for seniors to keep working if they desire.
The day of reckoning is coming again. Many young people, including my millennial-age sons, don’t believe Social Security will be around when they retire (I had my doubts at their age, too). Something, or some things, will have to give. Except for government work, pensions are a thing of the past (and many government pension funds have issues, too). Phasing in higher retirement ages, as was done in 1983, to age 70 or even higher, given more extended life expectancy that some suggest may eventually reach 125 years. Changing the index by which benefits are increased will slow the increases in payouts.
And my least favorite idea: Lift the wage cap on how much you can pay into Social Security’s retirement fund, currently at $142,800, although focused on those making over $400,000. Do we want to convert Social Security from a transfer program into a welfare program? It’s challenging enough being an entitlement program. Frankly, done right, the first two solutions now might do the trick.
That’s the prescription to preserve the program for future generations. And that doesn’t even include Medicare. I have a solution there that no one seems to like. Still, I would convert Medicare benefits into an annual voucher, adjusted annually for inflation, that allows me to shop around for benefits that serve me best. You know, insurance companies would compete for my dollars. Novel concept! But frankly, there’s no political will for that common-sense solution. Most Democrats prefer “Medicare for all.” Yeah, that’s the ticket. Say goodbye to American leadership in health innovation, and say hello to health care rationing.
Blahous and his colleagues, modern-day Paul Reveres have been riding through our villages to warn of Social Security’s impending crisis for years. And the longer Congress waits, the more significant the political and policy hurdles become. And under the Senate’s “Byrd Rule,” named after the late Senate Democratic Leader Robert C. Byrd, the Senate cannot change Social Security under budget and reconciliation rules that can evade a filibuster. A bipartisan solution is essential.
There isn’t a Bob Dole around anymore for the next fix.