It's disturbing to hear young people say that Social Security won't be around when they retire. But it's not just young people. I've heard older Americans--some of them getting SS benefits--claim that SS is dying. But they are wrong. If you and old knew the facts, they would be armed to defend SS against the Party of Bads and Stupids that wants to tear down SS. Here are common view and my responses.
1. My nephew Bob, a college senior, informs me: "Social Security is bankrupt. Everyone knows that."
Not so fast. After all, there's a $2.8 trillion surplus in the SS fund. But, it's true: by 2030, SS may be able to pay only 79% of expected benefits. Why? For one thing the ratio of workers to retirees fell faster than expected. Also, wages have not grown much and that limits contributions. Higher unemployment during the Great Recession didn't help either. Finally, as more income shifts to the rich, less is taxed. Currently only the first $118,500 of wages are taxed. If you earned that much last year, you paid $7,347. So did Kobe Bryant and Donald Trump.
So SS financing uses regressive taxation. More on that later, but here it is important to add that SS benefits are mildly progressive. Benefits for poor and average earners replace a larger fraction of prior earnings than for the affluent.
2. Sarah, my Wall Street banker cousin, says people need tax shelters. SS is so yesterday.
You should have something besides SS for your retirement. The average monthly benefit is only $1341. But when capitalists say we should save more, they don't seem to care that many people have nothing left after paying the bills. And many businesses don't contribute as much to employee tax shelters as they once put into old-style pension plans.
So SS is essential. It's more secure than private savings. Participation and taxation are compulsory for most employees; you don't have to think about adding to SS. And you can't raid your benefits as you can with tax shelters. Your freedom is limited; but it's for a good cause.
3. But Bob is still skeptical. If SS benefits are low and if SS financing is shaky, is SS really worth saving?
SS plusses outweigh the minuses. SS is a stable and rather conservative program. It has not missed a payout in eighty years. And it's efficient. Administrative costs are under 1% of revenues. That's less than private plans. SS pays 60 million people every month. After 9/11, checks were mailed to survivors three weeks after the attack on the World Trade Center.
Finally, while benefits can be quite low, many Americans are quite poor, so SS lifts many people out of poverty. Benefits are 83% of the total income of poorest two-fifths of all households. Benefits are the total income of 42% of African-Americans 65 and over, 45% of Hispanics, and 33% of Asian-Americans.
SS makes older people less poor and a little more independent. Their children can worry less too. We forget how grim old-age used to be. To get a feel for that, watch Make Way for Tomorrow (1937).
4. Bob's mother, my sister Isobel, agrees that we should fix SS rather than scrap it. She's a good citizen and has studied reform proposals. Here's my take.
a. Scam chains. Some purported experts, often conservatives, want to cut the SS Cost of Living Allowance. They claim that seniors spend less than others and they have formulas to prove it. The formulas often have the word chain attached to them and look ever so scientific, but they are really a sneak attack on the elderly.
b. Privatize parts of SS. If financing is a problem, and if the current surplus doesn't earn much interest (funds must be invested in special treasury bills), wouldn't it be smart to let Wall Street wizards invest the surplus? On average stocks and bonds grow by 7% a year, and the wizards would surely get more.
Response: That's what they say. But values often fall. And really, should we trust Wall Street after the catastrophe they caused a few years ago. People who were ready to retire during the Great Recession found that their retirement funds had shrunk by as much 40%.
c. Raise the age of full-benefit retirement. Everyone's living longer.