We’re Heading for a Social Security Apocalypse
Story by Khaleda Rahman, Newsweek, 6/29/23
Millions of American workers are concerned about what kind of financial safety net they will have when they retire, as fears grow for the future of Social Security.
A huge majority—88 percent—of Americans are counting on Social Security to see them through retirement, saying the payments will be “extremely” or “reasonably” important to them, according to a poll conducted exclusively on behalf of Newsweek.
That same poll found that a majority—60 percent—are “very” concerned that their payments will be reduced before they retire. Another 36 percent said they were “fairly” or “slightly” concerned, and only 4 percent of those polled said they were not at all worried. The survey was conducted by Redfield & Wilton Strategies, which surveyed 1,500 eligible voters on May 31.
Americans are right to be worried, analysts say. The fragile financial state of social programs was laid bare in the annual Social Security and Medicare trustees report released in March. The report forecast that the Social Security trust fund will be depleted in a decade, and is predicted to cover only 77 percent of benefits starting in 2033.
Fixing the programs has become a top talking point ahead of the 2024 election. President Joe Biden has pledged to rebuff any efforts to cut benefits.
But while he has proposed raising taxes on the wealthiest—those making $400,000 or more a year—to shore up Medicare, he has yet to offer up a specific plan to restore Social Security’s trust funds.
“The President is focused on the immediate threat to Social Security: Congressional Republican attempts to cut benefits,” White House spokesperson Robyn Patterson told Newsweek. “He welcomes proposals from members of Congress on how to extend Social Security’s solvency without cutting benefits or increasing taxes on anyone making less than $400,000.”
Republican leaders say they don’t intend to cut benefits, but have not united behind a plan to keep the program solvent. A plan offered up by members of the House Republican Study Committee proposed raising the age at which someone could start claiming full Social Security benefits.
Such measures seek to address an issue that became known as the “third rail of American politics”—an issue so taboo that many policymakers simply refused to go near it. While they are now discussing such concerns, critics say there remains a lack of urgency on both sides of the political divide.
‘Doing Nothing is Simply Not an Option’
Sen. Bill Cassidy, a Republican from Louisiana, told Newsweek that Americans are right to be concerned. He warns that poverty among the elderly would rise rapidly if Social Security benefits are cut by almost a quarter.
“It’s good that the American people are aware of that, and hopefully, politicians running to be the leader of our country will actually show some leadership,” he said.
“I think that politicians don’t give the American people enough credit for what’s going on. Biden and Trump have the same plan, which is a plan to do nothing. They keep telling everybody, don’t worry about it.”
Michael Peterson, the CEO of the nonpartisan Peterson Foundation, which is dedicated to increasing awareness and accelerating action on the nation’s fiscal challenges, said “doing nothing is simply not an option.”
“If lawmakers fail to act on Social Security, within a decade all current retirees would face a 23 percent automatic cut, reducing the average annual benefit by $6,000 and growing every year,” he told Newsweek.
Petersen said politicians “who promise not to ‘touch’ these programs are leaving seniors with a false sense of security, because doing nothing puts them in serious jeopardy.”
Olivia S. Mitchell, an economics professor at University of Pennsylvania’s Wharton School of Business and director of the Pension Research Council, told Newsweek that benefits “are primarily paid out of Social Security payroll taxes, to the tune of about $5,300 per year per worker, and average benefits amount to about $18,000 per year per beneficiary.
“As many Americans now understand, the program’s budget has run short since 2010, when program costs first exceeded payroll tax revenue; this gap continues to grow at a rapid rate.”
The Social Security program “faces big trouble,” she said.
“Today’s workers, persons with disabilities, retirees, and our children simply cannot plan ahead without knowing what will happen to Social Security in the future.”
She noted that to bring Social Security back to solvency, the program needs an additional $20.4 trillion to keep it stable for just the next 75 years.
“Another $61.8 trillion is required keep it going for our children and grandchildren,” Mitchell said. “This staggering level of underfunding will haunt future generations and hobble economic growth for the foreseeable future.”
Some argue the situation is not so dire.
The Center on Budget and Policy Priorities, a progressive think tank, said in a March blog post that “claims of Social Security’s impending ‘bankruptcy’ are highly misleading and demonstrate misunderstanding, or deliberate misrepresentation, of Social Security’s finances.”
Social Security “faces a significant, though manageable, long-term funding shortfall,” but lawmakers have plenty of time to act, the post by Kathleen Romig and Luis Nuñez said.
“Because Social Security faces no imminent crisis, policymakers have time to carefully craft a financing package that minimizes cuts to the program’s modest but critical benefits. As long as workers are paying payroll taxes, Social Security benefits will be paid.”
How Social Security Could be Fixed
Social Security benefits have not been reformed for 40 years, when the federal government raised the eligibility age for the program from 65 to 67.
Cassidy said he does not support raising the age of eligibility for seniors.
His plan to fix Social Security’s woes involves creating an investment fund separate from the Social Security trust fund. Those funds “will be allowed to be invested in the stock market and other aspects of the private economy, then allow that to compound over 70 years,” he said. “If you do that, they can offset whatever borrowing you need to do in order to maintain current benefits.”
That would make up for about 75 percent of the shortfall, he said. “That’s our big idea,” he said. “Other countries do it. The United States actually does it for the Railroad Retirement System. We already do this. All we’re doing is applying this successful model to Social Security.”
Mitchell said the proposals offered to return Social Security to solvency when she served on the bipartisan Commission to Strengthen Social Security more than two decades ago “would have worked.”
“And in fact, there would still be funding left over under our plan to boost benefits for the lowest-income retirees,” she said.
“Put simply, our plan was to grow benefits at the rate of price inflation instead of wage inflation (the current approach). This is all it takes to restore the system to balance over a period of time. I continue to maintain that this package of reforms is the best option for our country.”
No Time to Waste
Cassidy said the longer lawmakers wait to fix the problem, the worse it could get.
“Everybody keeps pointing back to 1983, where they waited up until a few months before insolvency and they said don’t worry, we’ll fix it at the last moment,” he said.
“There is a consequence to waiting, and the consequences are that the cuts are deeper and if you’re going to offset them, then then what you do to offset them has to be more severe.”
Petersen agreed. “Elected leaders who truly want to help seniors should share with voters the many reasonable and fair revenue and spending options that are available,” he said.
“For Social Security, the reforms could include a balanced mix of additional revenues, benefit modifications that protect the most vulnerable, and a phased-in increase in the retirement age.
“Ultimately, ignoring these Trustee reports won’t make our nation’s entitlement problems go away, it will just make them more difficult to fix down the road. Lawmakers have a valuable opportunity to stabilize these cornerstone programs, while bolstering our nation’s fiscal and economic outlook at the same time.”