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Retirement Planning > Social Security

The push to save Social Security

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Social Security’s money problems hang heavily over the future of retirees, leaving many politicians and industry watchdogs to worry if the nation will see a growing number of old, poor people without the resources to pay for even the basics of life.

Statistics paint a picture of millions of senior citizens forced to live in poverty after their working years end. But congressional gridlock prevents any action that would allow Social Security benefits to remain at promised levels despite evidence of broad public support for changes.

“I fear that if we look at this 30 years down the road, it will look very different. So much of the work we’ve done over the last century with Social Security and Medicare will be undone,” said Diane Oakley, executive director of the National Institute on Retirement Security, a nonprofit research and education organization based in Washington, D.C.

Related story: Claiming Social Security at 70 can cost your clients

What happens before those decades pass will go a long way in determining how well current workers fare during retirement. Current projections show that the Social Security fund’s surplus will run out in 2033. After that, benefits will be reduced to 75 percent of promised levels.

Official poverty estimates for the elderly in the U.S. range from 9 percent to 14 percent, depending on the measure used. The Census Bureau uses two methods to measure poverty. The first, which settles on the lower figure, sets the poverty line at three times a subsistence food budget. Since it was developed in the 1960s it has been updated only for inflation.

The second method takes into account other necessary expenditures including out-of-pocket health-care costs, which are usually higher for the elderly.

Other measures are bleaker. The Organisation for Economic Co-operation looked at retirement benefits among 34 countries. It pegged the U.S. poverty rate for the elderly at just below 20 percent. The OECD defines poverty as earnings of 50 percent of median income for households of a similar size. This method is used as a way to measure the ability to afford the standard elements of a lifestyle in a given society.

Staying above the poverty line is becoming a more difficult proposition as companies have shifted from traditional pension plans with defined benefits to savings plans marked by defined contributions.

“Individuals with a defined benefit income are nine times less likely to be at or near poverty, “Oakley said.

Oakley said the change in employer-sponsored retirement plans makes Social Security that much more important to retirees’ financial security.

“Everyone says Social Security was never intended as total income (for retirement),” she said. “But workplace pensions only cover about half of all workers and 92 percent don’t have enough savings.”

Before Social Security was implemented, more than half of all U.S. seniors were living in poverty. Those who had no family to take care of them were left to their own devices or, as Oakley, said, “would end up at the poor farm.”

Today, the system keeps 35 percent of all senior citizens out of poverty, according to AARP’s Public Policy Institute. That translates to help for 14 million people.

There are only a couple of ways to strengthen Social Security to ensure benefits are not cut in the future. Currently, it is funded solely through taxes levied on employees and employers and borrowing to pay benefits is prohibited by law.

“I think people need to stop and think,” Reno said. “(Social Security) is a self-funded system and because it can’t borrow, the only way to strengthen it is by increasing taxes or reducing benefits.”

A survey conducted earlier this year by the National Academy of Social Insurance found results that might surprise many.

“What’s contrary to conventional wisdom is the willingness to pay taxes to improve Social Security,” said Virginia Reno, senior vice president for income security at the academy. “People don’t mind paying for it.”

The survey of 2,000 Americans age 21 and older found that 84 percent said they don’t mind paying for Social Security because it helps millions of people. Wealth had no effect on answers, with more than 80 percent of working Americans and the wealthy saying increased taxes were worth paying to preserve Social Security.

Nearly 90 percent said the benefits of Social Security were more important than ever and that sentiment cut across party lines with 81 percent of Republicans and 94 percent of Democrats agreeing. Three-quarters said increases in benefits should be considered.

The ball is squarely in Congress’ court. A bill introduced in November by Sen. Tom Harkin, D-Iowa, dovetails with the survey’s findings.

“Seniors have spent a lifetime paying into Social Security, but as the cost of living continues to rise, the budgets of many are stretched to the breaking point,” Sen. Sherrod Brown, D-Ohio, said in a statement endorsing the bill. “That is why Congress needs to do more to ensure that our seniors receive the benefits they’ve earned so that they can continue to retire with dignity.”    

The bill would increase payments to all beneficiaries, but offer more help to low-income retirees. Second, it would raise collections for Social Security by phasing out the current taxable cap of $113,700. That would mean the highest earners would pay taxes on the same proportion of their income as those earning less.

But its passage is not guaranteed. Two House Republicans, Jim Bridenstine of Oklahoma, and Doug Lamborn of Colorado, this month proposed cutting Social Security benefits to restore cuts to the Pentagon caused by sequestration.

Their bill proposed using “chained CPI” to calculate cost of living adjustments in retirement benefits, something the Harkin bill would forbid. Under a chained Consumer Price Index, Social Security benefits would rise 0.3 percent more slowly than under the current formula. By age 92, monthly payments would be 8.4 percent lower.

Whether either bill makes it to law is a long shot. But, in a snapshot, they offer competing visions on how this country will manage the very real threat of an epidemic of elderly poor.

“When given a choice,” Reno said, “(Americans) would rather pay for a stronger Social Security than phase down benefits.”


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