ElderLaw Answers Blog

Now that health care reform is settled, at least for now, a battle over a new area of policy reform is quietly gaining momentum – Social Security. The fear is that Social Security is going “broke” or “bankrupt” (pick your fiscal disaster) and something needs to be done, and fast.

Holders of this view got fresh ammunition when it was recently reported that due to the Great Recession, this year the Social Security system will be paying out more in benefits than it takes in from taxes — six years ahead of what had been predicted only a few years ago. Calls for benefit cuts – such as raising the age of retirement — in order to head off fiscal chaos are being heard, and many younger Americans assume that Social Security won’t be there for them, at least in any form they recognize now.

But how close to the brink is Social Security and do we need to cut benefits to pull it back? From what I’ve been reading, the brink is a long way off and it could disappear from view entirely with a few very painless changes to the way we raise revenue for the program.

First, the Social Security program’s trust fund currently stands at a massive $2.5 trillion. As Zach Carter, an economics editor at AlterNet puts it, “If the federal government makes absolutely no changes to Social Security whatsoever, the program is currently projected to remain fiscally fit through 2037.” Carter also points out that as the economy recovers, Social Security’s revenues will increase and the 2037 date will likely be pushed back. More happy news came in the form of a RAND Corporation study, which found that “the number of older Americans who delay retirement is likely to continue and even accelerate over the next 20 years, a trend that should help ease the financial challenges facing both Social Security and Medicare.”

If we want to shore up Social Security so that it remains fiscally sound for the foreseeable future, there are several ways to do it without cutting the benefits of retirees who have “worked hard and played by the rules,” to use Bill Clinton’s famous phrase. I’ve always wondered why everyone pays the same percentage of their income in Social Security taxes, no matter how much they earn, and why income subject to the payroll tax is capped. The cap currently is $106,800, meaning that someone who makes $250,000 a year is paying no Social Security tax on more than half their income. CounterPunch columnist David Lindorff agrees that not taxing such income makes no sense, and he also suggests increasing the employer’s contribution to Social Security tax payments. He makes a persuasive case that this will hardly make American business uncompetitive.

In any case, we’re not even close to facing “crisis” in what Mark Miller of Retirement Revised calls “the most successful and valuable part of our retirement safety net.” We would do well to study the agendas of those who claim that a Social Security crisis is at hand and that benefit cuts will have to be part of the solution.

The MacArthur Foundation’s Research Network on an Aging Society has released a report predicting that by 2050 Americans may well live on average almost eight years longer than is predicted by the Census Bureau or the Social Security Administation.  More likely, life expectancy for males will be three years longer than now predicted, reaching 83 years and for females will be 4.5 years longer than predicted, reaching 89 years, both approximately a decade longer than today’s life expectancy.

If these predictions come true, it will have a significant impact on Social Security and Medicare expenditures, which are already facing bankruptcy (Medicare especially) under lower longevity forecasts.  Yet, the MacArthur Foundation Study, Aging in America in the Twenty-First Century: Demographic Forecasts from the MacArthur Foundation Research Netwok on an Aging Society, is not entirely pessimistic.

On the one hand, the rapid aging of the population and the continued extension of life may lead to catastrophic economic and health conditions in the United States as age entitlement programs such as Medicare and Social Security are severely strained or even collapse under the weight of the baby boom generation (Peterson 1999). The emergence of counterproductive intergenerational tension and discord would likely be another detrimental by-product of this scenario.

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On the other hand, the extension of life increases one of the most valued of all commodities: human capital (Bloom and Canning 2000). Longer lives will surely create new and expanding markets in health care and leisure (Butler et al. 2004), and they also will produce a more experienced workforce. The baby boom generation will both demand and create an array of novel ways for older persons to remain productive and participate in the creation of a more equitable society.

If their longevity predictions are correct, most of us will live to see which possible future becomes reality.

As reported in an earlier blog entry, our recent survey on the ElderLawAnswers Web site asking whether site visitors favor job creation or deficit reduction revealed that almost 60 percent consider it more important to reduce the deficit than to create jobs at this time. But a provocative new article by noted economist James K. Galbraith in a recent issue of The Nation makes a compelling case that deficits are necessary, are nothing to be feared, and that in fact “deficit phobia,” rather than deficits, “is one of the deepest dangers we face.”

Galbraith maintains that “a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.” He explains that there are two ways to spur economic growth. One is for government to spend and the other is for banks to lend. Government spending has an advantage over private lending because it puts money in private pockets. Private households get more cash and own that cash free and clear. “Bankers don’t like budget deficits because they compete with bank loans as a source of growth,” Galbraith writes.

But aren’t deficits bad? Shouldn’t we be concerned about our government failing to live within its means just as we would for our own families? “In these matters,” Galbraith says, “the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.”

“With government,” Galbraith continues, “the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Since it is the source of money, government can’t run out. Too much spending, net of taxes, may lead to inflation, often via currency depreciation — though with the world in recession, that’s not an immediate risk.”

Galbraith goes on to dispel the myths that public debt is a burden on future generations and that we should be concerned about indebtedness to foreigners, China in particular. He also notes that just as the government cannot go bankrupt, neither can government programs like Social Security and Medicare. Fears about the solvency of these programs are “part of one of the great misinformation campaigns of all time.”

Galbraith, by the way, is not some wild-eyed radical. The son of renowned economist John Kenneth Galbraith, he is a professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. His article, “In Defense of Deficits,” offers, at the least, a refreshing counterbalance to the deficit fears that have been driving much of the policy debate over social programs lately.

To read Galbraith’s article, click here.

The financial insecurity of the economic downturn has moved more Americans to value the financial security offered by Social Security, according to a poll recently released by the National Academy of Social Insurance.  While  President Bush could not get much traction even in good economic times for his efforts to privatize Social Security, it looks like he would get even less today.

According to results of the poll, conducted by Benenson Strategy Group, 88 percent of Americans say that Social Security is more important then ever in light of the current economy.  At the same time, they’re worried about the program.  Ninety percent are concerned about its ability to pay benefits to future generations and 44 percent of non-retirees are concerned about it being there for them. 

In what appears to be a new coming to terms with reality, the poll reports that three quarters of respondents agreed that workers should contribute more to the program if necessary to preserve it.  We can hope that this signals a change from the promises of many politicians that American citizens could get something for nothing which have contributed to our nation’s personal and shared budget deficits.

Floyd Norris, writing in The New York Times, points out an unusual and previously unremarked phenomenon of our current recession.  While employment has dropped precipitously for younger workers, it has risen for older workers.

The hardest hit group in actual numbers of jobs is those age 35 to 44, who lost more than one million jobs this past September through November as compared to the same months a year ago.  Those aged 45 to 54 lost approximately 150,000 jobs, less than 1 percent, while those aged 55 to 64 gained more than 550,000 jobs and those between ages 65 and 69 gained 190,000 jobs, increasing their employment by about 6 percent.

These numbers can be easily lost in a focus on the unemployment rate which for men age 65 to 69 increased from 3.4 percent in November 2007 to 5.9 percent in November 2008.  The reason the unemployment rate almost doubled while the number of those employed in this age group increased by 6 percent reflects two trends.  First, women in general are doing better than men, and one the increase in jobs includes both sexes while the unemployment rate is only for men. 

Second, more older workers are postponing retirement or seeking to go back to work due to the drop in their retirement savings.  The unemployment figures reflect the relationship between the number of people seeking work and the number employed.  Those not seeking work a year ago, but now seeking work, can account for a large part of the increase in the unemployment rate despite the increase in actual employment.

While these figures are distrubing in terms of what they mean for our younger workers, they are somewhat encouraging for the Baby Boomers and the future of our economy.  They reflect both their bargaining power within the labor force and the ability of the economy to self-correct to some extent.  There have been dire predictions as to what will happen to the economy when Baby Boomers retire and the number of workers supporting the number of retirees is insufficient to maintain Social Security and Medicare.  The result may be that many Baby Boomers will postpone retirement — whether out of necessity or a desire to keep active — thus improving the ratio of workers to retirees and enabling those working to help support those retired.

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  Though they will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Of course, this is the average.  Men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

This is also basically true of single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today’s seniors, most wives’ benefits are based on their husband’s work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice — first while their husband’s are alive when they get a reduced benefit, usually half of the husband’s benefit, and second when the husband dies (which often happens due to women’s greater life expectancy) when they receive their husband’s benefit rather than their own.

So, why do men do this?  Are they cads?  The researchers conclude that they are not, that instead they simply don’t understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that “financial education has not been especially effective in changing behavior.” As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary’s full retirement age.

Interestingly, while the Social Security Administration’s Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to: http://crr.bc.edu/index.php?option=com_content&task=view&id=485&Itemid=4