Assuming politicians can get agreement that something needs to done about Social Security funding at all, the responses generally indicate that significant benefit cuts cannot occur for those that are in, or nearing, retirement. It takes a lifetime to prepare for retirement, and many who are older have already made past decisions based on the assumption that Social Security was an available resource.
The 2012 report from the Social Security trustees is dated April 23, 2012. The Social Security’s Board of Trustees consists of six members, all of whom are from the Obama Administration. The 2012 report continues a long line of prior annual reports that predict disaster for Social Security. The underlying challenge is that America faces an aging population. We can see the impact of an aging work force with some of the European countries that are currently facing austerity programs. They are a bit ahead of the U.S. in terms of the impact of social welfare programs with an aging population. The trustees of the Social Security program state:
Under current law, the projected cost of Social Security generally increases faster than projected income because of the aging of the baby-boom generation, continuing low fertility since the baby-boom period, and increasing life expectancy. …
Another important way to look at Social Security’s future is to view its annual cost and non-interest income as a share of U.S. economic output. …The Trustees project that Social Security’s cost as a percent of GDP will grow from 4.4 percent in 2008 to about 6.4 percent by 2035, then decline to 6.1 percent by 2055, and remain between 6.0 and 6.1 percent through 2086.”
Absent immediate changes affecting older people, the impact of delayed solutions are almost unthinkable. Even with immediate change, the problem is enormous. For example, in order to keep the fund from going broke, payroll taxes would need to immediately increase 2.67 percent. Here is what the report says:
The Trustees project that annual cost will exceed non-interest income throughout the long-range period under the intermediate assumptions. The dollar level of the combined trust funds declines beginning in 2021 until assets are exhausted in 2033. …
For the 75-year projection period, the actuarial deficit is 2.67 percent of taxable payroll …. The open group unfunded obligation for OASDI over the 75-year period is $8.6 trillion in present value and is $2.1 trillion more than the measured level of a year ago.”
Alternatively, if benefits are reduced, the report states that one could also address the shortfall by giving all retirees:
… an immediate and permanent reduction of 16.2 percent. Lawmakers would have to make significantly larger changes for future beneficiaries if they decide to avoid changes for current beneficiaries and those close to retirement age.”
But no one on either side of the political aisle is proposing immediate change in benefits. If no changes occur, Social Security will generally be able to fund only around 75 percent of the full benefits (or lower as the population continues to age) on a pay-as-you-go basis using current taxes.
Many might suspect that the age group generally exempted from Social Security cuts are thinking “Hooray for that”. But exempting older Americans ensures that any solution will not work. By the time most proposed cuts will take effect, Social Security will have already run deficits for so long that the catch-up cost will be too much to swallow by those called to pay for them.
Additional quotes from the report are in this longer article.
The time to act is now. The sacrifice will need to be shared by people of my age. While many might think that cutting benefits for those that have been taxed a lifetime for Social Security (meaning, people like me) is unpalatable, it is even worse to see the consequences of delay heaped on our children and grandchildren.