In response to one of my recent articles on Social Security, reader Andrew writes;
If I may, I'd like to dispute your characterization of the motivations of "young voters." I've been getting my yearly statement from the Social Security Administration for a couple of years now, and they've been saying quite clearly that the system is going to run out of money before I retire. That's my motivation, and when the President addressed it, I said "About time."
I'm 28 and remember market crashes very well. We just had one, as you recall, but the economy didn't collapse as a result of it. Market crashes are only a worry of those who don't invest properly.
But, to your argument that Social Security is stable and solvent: please argue the point. I am given to understand that the number of workers to retirees is shrinking.
Okay, here goes. First, when you say that the Social Security system will run out of money before you retire, it all depends on what you mean by "run out of money." According to the Congressional Budget Office, a non-partisan, non-policy making arm of the Congress, Social Security outlays will exceed revenues- meaning more money going out than coming in- in 2019, which is decidedly within sight.
However, that alone doesn't mean the system will imediately fall apart. For many years, revenues exceeded outlays- more money in than out. That surplus was placed in the Social Security Trust Fund. When the outlays exceed the revenues, the difference comes out of the trust, which the CBO projects will only be depleted in 2052. Once the trust fund reaches depletion, all the money is due to come from the revenues collected. So while the system will run at a deficit in the foreseeable future, it will not go "bankrupt" any time soon. This is what I mean I say that Social Security is "solvent and stable."
As to the President's privatization scheme, the CBO has analyzed that as well. As I understand their analysis (and I am no economist) it doesn't appear to offer any susbtantial benefit. First, personal accounts would have no effect on the trust fund- according to CBO, it would still reach depletion in 2052 under the President's plan. Moreover, a retiree's benefits would be reduced at an amount equal to the annuity paid from the personal account. In other words, the retiree gets the same amount of money.
Which wouldn't be that bad if the retiree will be able to get more return than Social Security would be able to provide- put enough into the investment account, and you can opt out of Social Security altogether. Except you can't do that. Each taxpayer may invest no more than $1,000 per year, which is considerably less than the amount paid in Social Security taxes. In other words, it could supplement Social Security, but not replace it.
So if privatizing Social Security won't save it, why do it? Politics- the point of my posts from the last couple days. Individual accounts would be a boon to the banking and financial sectors- traditionally Republican contributors, and would undermine the strong association that Democrats have with Social Security. This White House is explicitly political, and so is this proposal.
This, of course, is no excuse to do nothing. The long-term viability of Social Security does need to be addressed, and sooner rather than later. The retirement age needs to be raised- people are living and working longer, and the law needs to reflect this. This could be phased in over a number of years- the retirement age stays 65 for people whose retirement is imminent- 55 and up, perhaps. For people between 50 and 54, raise it to 66- this will give those people enough time to adjust. Keep inching it upward until you get to people in their 20s, who have probably not even begun retirement planning and who will likely live into their 80s (if we do in fact keep living longer). Raising the retirement age both keeps people paying revenue into the system and defers benefit distribution. It's a simple solution, but there is enough time to try simple things before we try something radical.