As the record federal budget deficit draws
increasing scrutiny from Washington to Wall Street to Main Street,
deficit hawks may take aim at entitlement programs including Social
Security.
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Photo: Jonathan D. Colman
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And,
the nearly 80 million Baby Boomers phasing into retirement will set in
motion a dynamic that—if not addressed by Congress—could result in the
next generation getting fewer benefits.
However,
despite fears that Boomers will trigger a collapse of Social Security,
experts say the system can and will survive for decades and generations
to come.
Congress
made significant fixes to Social Security during the 1970s, the 1980s
and the 1990s, and there appears to be a slowly gathering political
will to make it solvent for the next 75 years.
By
2017, Social Security is expected to start paying out more than it
collects in payroll taxes, according to the 2009 Annual Report from the
Social Security and Medicare Board of Trustees.
There is currently a large surplus, but it will be drained by the year
2037. At that point, Social Security will only be able to pay out 75
percent of its benefits.
A separate report, done by the nonpartisan Congressional Budget Office, concludes much the same thing, but gives the system another 10 years before it begins to fall apart.
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The trustees’ annual report “does not depict a program in crisis,” said Kathy Ruffing, of the Center for Budget and Policy Priorities.
“Policymakers should act sooner rather than later to put the program on
a sound long-run footing, but today’s beneficiaries and workers
approaching retirement need not fear that their Social Security
benefits are at risk.”
“Alarmists
who claim that Social Security won’t be around when today’s young
workers retire misunderstand or misrepresent the trustees’
projections,” she added.
Beginning the Boom
Looking
back, the outlook was rosy for most Americans in 1946, the year
earmarked as the beginning of the so-called “baby boom.” With World War
II finally over, a 15-year stretch of bad times that had begun with the
great Depression was finally over. They responded by having more babies
than ever before, more than 78 million of them by 1964.
For
Social Security, the mini-population explosion was both beneficial and
problematic. Social Security is funded mostly through payroll taxes,
with present-day workers funding the payouts for retirees. Since there
have been so many Boomers in the workforce for so many years, there
were a lot more people putting money into the system than taking it
out.
As Boomers
begin to retire, the huge group of people putting money into the system
will begin taking it out of the system, which then will be funded by a
generation of workers—the so-called Gen X—whose numbers are some 15
million fewer. The surplus of money paid into the system by Boomers
will allow it to run into the late 2030s, even though it will begin
paying out more than it takes in by 2017.
“We won’t have a crisis,” says Michael Astrue, commissioner of the Social Security Administration.
“2037 is a long way off and there is no reason to panic, but this is a
serious issue we need to resolve. Younger people tend to overreact.”
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Count
Gen-Xer Tom Firey among those younger workers who think they’re getting
the short end of the stick. The managing editor of the conservative Cato Institute
magazine, Regulation, first wrote about the subject nearly 10 years ago
in a column headlined, “Boomers Fleece Generation X with Social
Security.”
“Ever
since we Gen-X/Yers began working, we've paid 12.4 percent of our
earnings to Social Security,” he wrote. “In contrast, the Boomers will
get a bargain. When they entered the workforce in the late 1960s, they
paid only 6.5 percent of their earnings to Social Security. Only from
1990 on, when the Boomers had earned paychecks for a quarter-century,
did they start paying 12.4 percent to Social Security, the same
percentage we Gen-X/Yers have paid our whole lives.”
That’s why Firey dubbed it The Boomers’ Bargain:
“They've paid less of their earnings into Social Security than we
Gen-X/Yers, yet they'll receive more in benefits than we will and we'll
pick up the tab.”
As
often comes with age, Firey has mellowed some in the past 10 years,
even injecting dark humor into his outlook today. He says, "The last
two generations gave themselves some additional retirement benefits
just before they left the workforce. The World War II generation gave
itself annual COLA (cost-of-living allowance) raises in 1975, and the
boomers gave themselves the prescription drug benefit earlier this
decade.”
“In
essence, these generations said, ‘I'm not willing to pay for these new
benefits for myself, but I'm happy to force my kids and grandkids to
pay for these benefits for me,’ “Firey added.
“That's
a lousy trick. Though to be fair, older generations don't realize that
this is what they're doing,” Firey said. “What depresses me most is
that my generation will probably turn around and do this to our
children and grandchildren.”
Changes Over the Years
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Source: socialsecurity.gov
President Franklin D. Roosevelt, signing the original Social Security Act on August 14, 1935.
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Social
Security will mark its 75th anniversary this August. Signed into law by
President Franklin Roosevelt during the Great Depression, it is the
country’s most successful anti-poverty program, offering retirement,
disability and survivor benefits to 50 million people. Over the past 40
years, lawmakers have tinkered with the formula several times to
address financial problems:
- In 1972, Congress expanded benefits with the annual COLA adjustments.
- In
the 1983, President Reagan created the Greenspan Commission to study
Social Security and make recommendations. Headed by soon-to-be Federal
Reserve Chairman Alan Greenspan, the commission grappled with the
growing demographic problem of Baby Boomers, the youngest of whom were
then 19.
Projections
already showed that the ratio of workers paying retirees’ benefits
would plunge from 16 to 1 to 2 to 1 when the last boomers retire
decades in the decades to come.
To
eliminate that deficit, the commission suggested hiking the Social
Security payroll tax, and lifting the retirement age to 67 by 2026.
Congress promptly passed the legislation and Reagan signed it.
Workers
can still collect Social Security retirement funds when they turn 62,
but that is the “early retirement age,” and benefits are reduced by
about 25 percent.
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The
full retirement age now depends on when you were born. If you were born
between 1943 and 1954, you receive full benefits if you retire at age
66. If you were born in 1960 or later, your full retirement age is 67.
Some observers suggest the retirement age may need to be raised to age
70 if the system is to remain solvent.
- In the 1990s, Congress raised taxes on benefits to the current 12.4 percent.
In
his February 2005 State of the Union Address, President George W. Bush
named strengthening Social Security as one of the priorities for his
second term in office. He also called for a transition to a combination
of a government-funded program and personal accounts ("individual
accounts" or "private accounts") through partial privatization of the
system.
This
proved controversial and further Social Security reform has been
blocked by the dispute over privatization. The recent turmoil in the
financial markets exposed some of the problems that approach would
pose, and privatization no longer appears to be on the table.