Brian Doherty is a former senior executive in the financial services industry and the author of the upcoming book, Want Some Maximum Social Security? He will contribute occasional columns to Grandparents.com on issues related to the Social Security debate. The opinions expressed below are Doherty's alone; Grandparents.com is not an advocacy group and does not seek to influence public policy. We do encourage our readers to share their thoughts on this critical debate in the Comments area below.
Have you ever watched the game show Family Feud? One thing that's always struck me about the show is that, no matter how silly or off the subject a contestant's answer to a question is, the rest of his or her family team always claps and cheers, "Good answer! Good answer!"
I thought of Family Feud when I read about AARP changing its longstanding position and revealing itself to be open to discussing Social Security benefit cuts as part of any effort to shore up the system. I am 53 and an AARP member, so I guess that makes me part of the AARP family. But this policy change is not a good answer.
Like many of AARP's 37 million members, I don't like the idea of Social Security benefit cuts, and I couldn't believe it when I read that AARP, for so long one of the system's strongest defenders, could endorse such cuts.
I don't know how AARP's leaders determined that benefit cuts are an inevitable part of the solution to keeping Social Security on solid financial footing. Maybe they started to believe the never-ending barrage of statements from politicians and the media that said our current system is unsustainable. We've heard it so much now that the majority of Americans seems to believe it.
But it's just not true.
Faith in the System
A recent AARP survey found that young people were doubtful about the long-term viability of Social Security. And why do they doubt that Social Security will be around for them when they retire? Do you think it has anything to do with having heard that claim so often from politicians and pundits? Here's the truth: Social Security isn't going anywhere. If no changes are made to the program by the year 2036, benefits will have to be cut by approximately 25 percent. That means that even if we do nothing, Social Security doesn't cease to exist or go out of business – it continues on, but only pays out 75 percent of the expected benefit. But it doesn't have to be even that bad. In fact, if we made some simple changes now, we could put the system on solid ground, with no benefit cuts, for at least the next 75 years – past your grandchildren's retirement age.
I remember the last time major changes were made to Social Security, in 1983. At the time, the changes were meant to shore up the system for 50 to 60 years. I didn't care much, because I was 26 and didn't think Social Security was going to be around when I retired anyway. (Sound familiar?) But as I grew older, I became less indifferent. Now I derive a great deal of comfort when I receive my annual statement and see how much Social Security is going to pay me when I retire. My feelings have changed over time, and I have no doubt that the same thing will happen to the current crop of young people.
I just finished writing a book that advises people how to maximize their Social Security benefits. I wrote it because I spent more than 25 years working in the financial-services industry, the last six devoted to educating advisors at some of the nation's largest financial institutions on the unique challenges facing retirees. It quickly became clear to me that the foundation of any retirement plan was Social Security income – in fact, for the majority of people, Social Security income was the most important component. But I also realized that most people got little or no guidance on when to claim benefits, and so were likely to make the very poor decision of claiming them too early. And what's one major reason people claim too early? It's that they don't think Social Security will be around for long. I had to find the root of this fear and see how it could be erased.
Doing the Math
I was surprised to find out that the fix for Social Security is relatively simple; that is, the math is simple, not the politics. Because the costs for Social Security are relatively predictable, the best solution lies in generating enough revenue to cover those costs. If the federal government wanted to fix the system in one fell swoop, it would increase the payroll tax by approximately 2.2 percentage points, splitting the cost evenly between the employee and the employer (at 1.1 percentage point each). But even that small increase may be too much for some reflexively anti-tax politicians to accept.
The other option is to raise the earnings cap for Social Security payroll taxes. The cap currently stands at approximately $107,000, and represents approximately 83 percent of aggregate wages of all workers. But the cap had been set to cover 90 percent of aggregate wages for all workers. If it were just restored to that level, it would substantially increase revenues, although it would not entirely fix Social Security's funding problems.
I believe the best solution lies in combining the two options. Raising the earnings cap will generate sufficient revenue to allow for a significantly smaller payroll tax increase – about 1.5 percentage points, again split evenly between employee and employer. Many will oppose even this small tax increase. I'm not a fan of higher taxes either, but I see these increases as reasonable, and I'm confident they would guarantee Social Security payouts for at least the next 75 years. Remember one important thing about the Social Security tax: When you retire, you start to get it back. Live long enough, and you get it all back. Live a very long time and you get back even more than you put in. That makes it different from other taxes.
Still, I realize that we're in a budget-cutting political climate, and if our elected officials feel they must make a cut, the one that would be most palatable is increasing the Full Retirement Age for Social Security from 67 to 68. That may not appear on the surface to be a cut in benefits, but it is. It would have to be phased in over many years, and it could be justified by the fact that people are living longer. Further, including this in any Social Security deal would lower the necessary payroll tax increase even more.
It Can Get Done
So there is a fix for Social Security if politicians have the courage to embrace it. But what's most important is that it be done without decreasing the benefits people receive. When I first started studying the system, I did not realize how critical it was for average Americans. The more I learned, the more I realized that Social Security is the greatest anti-poverty, retirement-income program in our history.
| How secure do you feel about Social Security? |
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I'm not worried; it'll be there for me and my grandkids 30.3%
I'm sure we'll have to face benefit cuts soon 43.0%
I don't think the program can survive long-term 26.7%
| |
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Consider: In 1950, approximately 40 percent of elderly Americans lived in poverty. Today, only about 10 percent do. The biggest reason for the improvement is Social Security. It's been estimated that if we didn't have Social Security, about half of our elderly would be living in poverty overall, and 60 percent of elderly women. About 80 percent of Social Security recipients today are either totally or critically dependent on that income to maintain a decent standard of living.
I know that when Social Security was created, it was only supposed to be a supplemental source of income for retired Americans. But at this point, it doesn't matter what the original intent was – the reality is that the majority of retirees depend on Social Security for the majority of income needed to maintain their quality of life. And still, with an average monthly benefit of around $1,200 – or $14,000 a year – nobody is getting rich on Social Security. (The federal government has set the official poverty line at about $11,000 per year.) So why do so many groups say the only feasible solution to funding Social Security has to include benefit cuts? So we can push a higher percentage of future retirees below the poverty line?
The country's most at-risk retirees are single, elderly women. The group's poverty rate is about 20 percent. That's way too high. And yet hardly anyone talks about this silent crisis. As women continue to live longer than men, any future cuts to Social Security benefits would force more single, elderly women to live in poverty.
We can't do that, and we don't have to.
Beyond Party Politics
Some of you reading this column may imagine that I'm a typical liberal, out to solve every problem facing us by increasing taxes. The truth is, I'm a conservative, and Ronald Reagan was my hero. There are millions of retirees in America – some are Democrats, some are Republicans. They all value their Social Security checks, and they're all entitled to a solution that looks beyond political labels to preserve the system. So are future generations of recipients.
In the past, when it came to defending Social Security, we could always count on AARP to step up and do the right thing. But now, that defense is in doubt.
I would say this to AARP's leaders: It's not too late to admit your mistake. There is a reason you've become one of the world's largest membership organizations. It's because you've always put the interests of your members first. I have always admired that, and always thought you pursued your cause with integrity. That's why, on behalf of millions of future recipients, I respectfully request that you reconsider your concession that benefits cuts become part of the answer to Social Security's funding dilemma. Because benefit cuts are not a good answer.
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