July 19th, 2017
It’s a refrain that Americans approaching their retirement years have heard for years now: Social Security is poised to run out of reserve cash in 2034, which could potentially trigger a sharp decline in benefits. But a recent research brief implies that a solution could be simpler than many in industry observers imagine — assuming Congress can somehow agree on a compromise.
Writing for the Center for Retirement Research at Boston College, director Alicia H. Munnell summarizes the most recent 2017 Trustees Report, which presents the state of the Old-Age, Survivors, and Disability Insurance (OASDI) trust fund.
“The bottom line remains the same,” Munnell writes, noting that the exhaustion year of 2034 has not changed for several years. “Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes.”
Munnell, a Boston College management professor who has advocated for the use of reverse mortgages as a part of some Americans’ overall retirement strategies, makes the somewhat surprising assertion that fixing the problem is easy — and that the “problem” itself wouldn’t be as devastating as it seems at face value.
“The exhaustion of the trust fund does not mean that Social Security is ‘bankrupt,’” Munnell writes. “Payroll tax revenues keep rolling in and can cover about 75 percent of currently legislated benefits over the remainder of the projection period,” which stretches all the way to 2091.
Still, that would mean that recipients’ Social Security income would decline to levels not seen since the Eisenhower administration: Instead of covering 36% of a 65-year-old worker’s pre-retirement earnings, Munnell writes, that number would drop to 27%, its lowest point since the 1950s.
For the tax wonks out there, Munnell then dives into detailed plans to fix the coming crisis, including a Republican-sponsored proposal to cut benefits, and a Democratic-led effort to raise payroll taxes. She concludes that they “bracket the range of options,” presenting two extremes with the answer likely falling somewhere in the middle.
“These are useful bookends, highlighting that policymakers need guidance about how Americans want the burden of fixing Social Security allocated between benefit cuts and tax increases,” Munnell writes. “Finding a mechanism to communicate those preferences to Congress is the big challenge.”
She ends on an optimistic — perhaps overly so, given the current political climate — note.
“Once the preferred allocation is determined, filing in the specifics is relatively easy,” Munnell writes.
Read her full brief here.
Editor’s note: Beware of this logic. Congress would have to agree on something, but it’s pretty clear they are pledged not to.
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