Social Security’s Looming Insolvency – Blessing or Curse?
Imagine how you would feel after your doctor said, “I’ve got some bad news for you. You are healthy now, but you will die one day.” You’d surely be relieved he didn’t give you 6-12 months to live. And so it is with Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund (the “pension” part) which is projected to become depleted in 2034, with only 77 percent of benefits payable at that time. That was the verdict of April 22, 2019 of the Social Security Board of Trustees. Like our patient, health today, but facing a dire situation one day, which in this case is just over a decade.
The blessing is for today’s political leaders, including The Trump Administration, and all of the Democrat candidates for president in 2020. You scarcely hear a word about Social Security from any of the aforementioned. After all, why touch something that in their minds isn’t broken or unhealthy right now.
But alas, the system is broken now. Social Security will run a deficit every year from 2020 until 2034. The program will need to rely on past surpluses (reserves) to pay full promised benefits for the next 14 years. It’s akin to an individual draining his savings account to zero over that time period to pay for daily costs like rent, food and electricity.
Hence the curse is for future political leaders, who because of the inaction of today will be faced with even tougher decisions if the current crop of leaders waits ten years to reform Social Security. In ten years, the tax increases necessary would likely prove too unpalatable for voters of working age. Similarly, seniors would rebel if their benefits were drastically cut. But one or both would have to occur. The program needs revenue. Social Security, by law, can only pay out to beneficiaries that which comes in via payroll taxes.
The “how did we get here” has been written about ad nauseam since the last major Social Security reform in 1983. It’s demographics. First, people are living longer, much longer, than when the program began in 1935. There has only ever been one change to the retirement age, and by a mere two years, in those 84 years. Second, families are having fewer children. The workforce making payroll tax contributions has not and will not be able to keep up with benefits promised under current law.
So, what then? Simply put, the law must be changed. There are many proposals in Congress, but they get little attention. Some would even exacerbate the situation, including bills to eliminate the Windfall Elimination Provision and Government Pension offset, to augment payments to lower income people, and to reduce or eliminate income tax on benefits. All have their constituencies and even some merit, but only as part of comprehensive reform to increase the longevity of the Trust Fund should those proposals even be entertained.
The Association of Mature American Citizens (AMAC) has a reform plan to preserve and modernize Social Security by making modest changes in cost of living adjustments and the retirement age, without additional tax increases on workers. AMAC advocates for a bipartisan compromise, “The Social Security Guarantee Act,” taking selected portions of bills introduced by former Rep. Johnson (R-TX) and Rep. Larson (D-CT) and merging them with the Association’s own well researched ideas. One component is Social Security PLUS, a new yet voluntary early retirement plan that would allow all earners to have more income available at retirement. This component is intended to appeal especially to younger workers. AMAC is resolute in its mission that Social Security be preserved and modernized and has gotten the attention of lawmakers in Washington DC, meeting with a great many congressional offices and their legislative staffs over the past several years. Read AMAC’s plan here.