Social Security’s future depends on Voter dialogue
Laura Hahn is a graduate student in population and social gerontology. She
interviewed Bob Applebaum, a professor of gerontology. He is also director of
the Long-Term Care Research Project, at Scripps Gerontology Center.
I’m 30. The year I was born, the final episode of M*A*S*H aired; Sally Ride became the first American woman in space, and, I’m told, the government passed major changes to Social Security.
I try to care about retirement – I have a 401(k) and I recently started a Roth IRA – but my eyes glaze over with the mention of “Social Security.” There are other, more pressing financials to worry about, like rent, grad school bills and baby shower gifts. Retirement feels far away, and I’m sure my friends agree. In an effort to get with the program, I’ve decided to take one for the millennial team by asking my professor, Bob Applebaum, some embarrassingly basic questions about Social Security.
OK, here goes: Will Social Security be there for me when I retire?
Yes, but not as it stands today. Let’s start with some background: When Social Security was passed in 1935, we had 8 million older people and life expectancy for those reaching 65 was between 12 and 13 additional years. Today we have 40 million older people and in 2030, when the boomers reach full maturity, that number will top 75 million, with estimated future life expectancy of 20 more years. The 17:1 worker to retiree ratio that existed in 1935 is now about 3:1, and it’s projected to drop to just over 2:1 in 2030.
Recognizing these demographic changes, a bipartisan commission in 1983 decided it was essential for Social Security to accumulate a large surplus so that tax rates on the next generation would not have to substantially increase to accommodate the growing older population. The task of estimating in 1983 how big the Social Security surplus needed to be in 2040 was quite challenging. Factors such as unemployment, retirement, inflation and life expectancy all had to be estimated 60-70 years into the future. Today, the data indicate that we did not accumulate a large enough surplus. Estimates now suggest that by 2033, the surplus will be depleted and at that time, with no changes the program will only be able to pay benefits at the 77 percent level. So, the program will be there for you, but if we do not make any changes, benefits will be reduced.
How is Social Security changing for my parents?
Your parents are paying a bit more and may have to work longer to receive full benefits. Efforts to change a program like Social Security are difficult and recommendations are driven by individual philosophy. The 1983 commission was able to strike a balance between those who wanted to increase program revenues and those who wanted to reduce expenditures.
For all workers, payroll taxes were increased and for the first time Social Security benefits were taxable for higher-income retirees. For your parents, the retirement age was raised from 65 to 67, which means they may have to work longer to receive full benefits – unless you are going to help them in retirement.
People are living and working longer, so it makes sense to raise the retirement age, right?
Some people believe that, yes. The logic goes that if we have increased life expectancy, then we should increase the retirement age again. On one hand, that makes a lot of sense, but for lower-income workers, who are more likely to have poorer health and to be involved in manual labor, such a change could be a hardship.
Options such as raising the retirement age with exemptions for certain types of workers have actually been discussed, but there are many different opinions on this one.
True or false: Social Security is linked to the deficit?
That’s tricky. Because the politics of today have become more intense, really understanding the future issues associated with Social Security are even more difficult to sort out.
One example involves the Social Security Trust Fund. Originally, the design of Social Security called for funds to be placed in a trust fund that could be used for nothing else. Although this remains the case, a budget gimmick by President Lyndon Johnson designed to mask an overall budget deficit caused by the Vietnam War in 1968 moved Social Security into the annual budget process, where it remains today. This allows politicians of both parties to use the large surplus and expenditures in Social Security as part of the debate about cutting the budget deficit. Although the budget deficit is an important debate and the solvency of Social Security is also a critical question, they are completely separate issues.
We absolutely need to have a dialogue about how to reform Social Security in light of changing demographics, but it just should not be linked to the politics of deficits. What we need is a direct discussion of the issues that is done outside of the frenzied politics of the day. Solutions can be found, and Americans can understand and provide feedback about these important topics, if we actually can have this dialogue.
So, the future of Social Security lies in you and your peers joining across the generations to really talk about Social Security.
I’m 30. The year I was born, the final episode of M*A*S*H aired; Sally Ride became the first American woman in space, and, I’m told, the government passed major changes to Social Security.
I try to care about retirement – I have a 401(k) and I recently started a Roth IRA – but my eyes glaze over with the mention of “Social Security.” There are other, more pressing financials to worry about, like rent, grad school bills and baby shower gifts. Retirement feels far away, and I’m sure my friends agree. In an effort to get with the program, I’ve decided to take one for the millennial team by asking my professor, Bob Applebaum, some embarrassingly basic questions about Social Security.
OK, here goes: Will Social Security be there for me when I retire?
Yes, but not as it stands today. Let’s start with some background: When Social Security was passed in 1935, we had 8 million older people and life expectancy for those reaching 65 was between 12 and 13 additional years. Today we have 40 million older people and in 2030, when the boomers reach full maturity, that number will top 75 million, with estimated future life expectancy of 20 more years. The 17:1 worker to retiree ratio that existed in 1935 is now about 3:1, and it’s projected to drop to just over 2:1 in 2030.
Recognizing these demographic changes, a bipartisan commission in 1983 decided it was essential for Social Security to accumulate a large surplus so that tax rates on the next generation would not have to substantially increase to accommodate the growing older population. The task of estimating in 1983 how big the Social Security surplus needed to be in 2040 was quite challenging. Factors such as unemployment, retirement, inflation and life expectancy all had to be estimated 60-70 years into the future. Today, the data indicate that we did not accumulate a large enough surplus. Estimates now suggest that by 2033, the surplus will be depleted and at that time, with no changes the program will only be able to pay benefits at the 77 percent level. So, the program will be there for you, but if we do not make any changes, benefits will be reduced.
How is Social Security changing for my parents?
Your parents are paying a bit more and may have to work longer to receive full benefits. Efforts to change a program like Social Security are difficult and recommendations are driven by individual philosophy. The 1983 commission was able to strike a balance between those who wanted to increase program revenues and those who wanted to reduce expenditures.
For all workers, payroll taxes were increased and for the first time Social Security benefits were taxable for higher-income retirees. For your parents, the retirement age was raised from 65 to 67, which means they may have to work longer to receive full benefits – unless you are going to help them in retirement.
People are living and working longer, so it makes sense to raise the retirement age, right?
Some people believe that, yes. The logic goes that if we have increased life expectancy, then we should increase the retirement age again. On one hand, that makes a lot of sense, but for lower-income workers, who are more likely to have poorer health and to be involved in manual labor, such a change could be a hardship.
Options such as raising the retirement age with exemptions for certain types of workers have actually been discussed, but there are many different opinions on this one.
True or false: Social Security is linked to the deficit?
That’s tricky. Because the politics of today have become more intense, really understanding the future issues associated with Social Security are even more difficult to sort out.
One example involves the Social Security Trust Fund. Originally, the design of Social Security called for funds to be placed in a trust fund that could be used for nothing else. Although this remains the case, a budget gimmick by President Lyndon Johnson designed to mask an overall budget deficit caused by the Vietnam War in 1968 moved Social Security into the annual budget process, where it remains today. This allows politicians of both parties to use the large surplus and expenditures in Social Security as part of the debate about cutting the budget deficit. Although the budget deficit is an important debate and the solvency of Social Security is also a critical question, they are completely separate issues.
We absolutely need to have a dialogue about how to reform Social Security in light of changing demographics, but it just should not be linked to the politics of deficits. What we need is a direct discussion of the issues that is done outside of the frenzied politics of the day. Solutions can be found, and Americans can understand and provide feedback about these important topics, if we actually can have this dialogue.
So, the future of Social Security lies in you and your peers joining across the generations to really talk about Social Security.
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