Report: Fix Social Security Now–or Pay a Stiff Price

A bipartisan think tank finds that the costs of shoring up Social Security will skyrocket in coming years. We need to act now, while the costs are manageable.

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Sometimes waiting makes sense. A 62-year-old who waits until age 70 to file for Social Security benefits can expect almost twice the monthly benefit. A child that learns to save and consider before spending grows up better-adjusted, research shows.

But in the money world it’s often best to act now. That’s especially true of retirement saving. An extra 10 years of growth might double your nest egg at age 70. Likewise, from a policy standpoint, addressing the projected Social Security shortfall now would cost much less than kicking the issue down the road, a new report argues.

Social Security has already passed one important milestone on the road to insolvency: The program pays more in benefits than it generates in revenue. Another milestone is fast approaching: By 2033, the cumulative Social Security surplus (excess money collected over the decades and invested in Treasury bonds) will run dry. At that point, all beneficiaries regardless of age or income will face an immediate 23% benefits cut.

But the situation is less dire than it seems—if lawmakers act soon. The shortfall could be closed with a 16.5% across-the-board cut in benefits or a 20% cut for new beneficiaries, according to the report from the bipartisan Committee for a Responsible Federal Budget. That’s not painless. But it beats the alternative. In 10 years, the required benefits cuts would be 19% or 30%, respectively, the report states.

Another immediate fix would be a 2.7 percentage point payroll tax increase—from 12.4% to 15.1%. That jumps to a 3.3 percentage point hike in 10 years or 4.2 percentage points in 20 years, the report states.

Acting now also helps beneficiaries. There is no Tooth Fairy. At some point, we must address the shortfall and doing so soon would cost less and give future retirees more time to prepare for the new reality.

Some 162 million Americans pay Social Security tax and are counting on a payout when they retire. But they also know that the system cannot continue to function as it does today. They’d like some certainty to help in their planning. Large and abrupt changes are difficult to work around; gradual and predictable changes can be better managed.

For example, a 10% cut in benefits for a 30 year old who will retire in 2050 could be totally offset if that individual—or her employer—set aside an additional 1.1% of salary, the report shows. Waiting 20 years before a 10% cut in benefits would require setting aside an additional 2.7% of income.

As the authors conclude: “Waiting to enact reforms would be a significant mistake. The longer policymakers wait to act, the worse off taxpayers and beneficiaries will be.”

19 comments
laughingliberal
laughingliberal

@FixtheDebt "We need to act now" is oligarch speak for 'We need to grab what we can before they figure it out." Deficit is coming down

laughingliberal
laughingliberal

@FixtheDebt A bipartisan think tank. That would be Republicans and 'business friendly' Democrats. No thanks.

laughingliberal
laughingliberal

@FixtheDebt I think more like 2037 but, nevertheless, we have over a decade to figure it out. Lifting the cap looks good to me.

ScottZollo
ScottZollo

It seems President Roosevelt in his wisdom created the first transparent and sustainable federal program ever. First, no politics can play a part in the management of the Social Security Trust. Your Social Security Trust Account. President Bill Clinton was the first to "add an IOU to the Social Security Trust to pay down the Federal Debit. As we have seen, Treasury Bills never seem to mature to pay back the debit that was created during the Clinton Administration. If the Federal Government "paid back" the funds "one the IOU" we might have Social Security unencumbered by Scare tactic and increased efforts to control the Social Security TRUST that has been paid in advance by each working USA participate in the country. Maybe the priorities of the President and Congress is to continue fanning the fires of discord, rather than finding solutions to more immediate basic issues such as a working Federal Budget, Jobs, Feeding our poor and last following up on the promises to provide funding to the National Disaster victims our the last 6 years. Social Security Trust can handle the future issues with the monies that are returned "Borrowed" by the Federal Government. Let's hear progress that will bring back the American way of life. Let's see the Government provide "We the people. . ." with hope in our future without paying it off the backs of the working poor.

JoeTheEconomist
JoeTheEconomist

So it is not dire.  We are paying a quarter to buy a dime, and we only get the dime to the extent that we convince our kids to spend a quarter to buy a nickel.  What could go wrong with that?

"Fix Social Security Now" on FB

DaveJohnson2
DaveJohnson2

Cut Social Security 20% now because there is a chance that we might have to cut it 23% later if we don't? What?

JoeTheEconomist
JoeTheEconomist

@DaveJohnson2 ,

It isn't a change and might.  The Trustees are saying that it is a likely outcome in a good economy.  So you need to say : there is a high probability that we will have cut of 23% or more later...