So­cial Se­cu­rity will face a short­fall by next year as cri­sis creeps closer

The Buffalo News - - FRONT PAGE - By Jeff Som­mer

A slow-mov­ing cri­sis is ap­proach­ing for So­cial Se­cu­rity, threat­en­ing to un­der­mine a cen­tral pil­lar in the re­tire­ment of tens of mil­lions of Amer­i­cans.

Next year, for the first time since 1982, the pro­gram must start draw­ing down its as­sets in or­der to pay re­tirees all of the ben­e­fits they have been promised, ac­cord­ing to the lat­est gov­ern­ment pro­jec­tions.

Un­less a political solution is reached, So­cial Se­cu­rity’s trust funds are ex­pected to be de­pleted within about 15 years. Then, some­thing that has been unimag­in­able for decades would be re­quired un­der cur­rent law: Ben­e­fit checks for re­tirees would be cut by about 20% across the board.

“Old peo­ple not get­ting the So­cial Se­cu­rity checks they have been promised? That has been un­think­able in Amer­ica – and I don’t think it will re­ally hap­pen in the end this time, be­cause it’s just too hor­ri­ble,” said Ali­cia Mun­nell, di­rec­tor of the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege. “But action has to be taken to pre­vent it.”

While the is­sue is cer­tain to be

po­lit­i­cally con­tentious, it is barely be­ing talked about in Wash­ing­ton and at 2020 cam­paign events. The last time So­cial Se­cu­rity faced a cri­sis of this kind, in the early 1980s, a high-level bi­par­ti­san ef­fort was needed to keep re­tirees’ checks whole. Since that episode, the pro­gram has of­ten been called “the third rail of Amer­i­can pol­i­tics” – an en­ti­tle­ment too dan­ger­ous to touch – and it’s pos­si­ble that another com­pro­mise could be reached in the cur­rent era.

Ben­e­fit cuts would be dev­as­tat­ing for about half of re­tired Amer­i­cans, who rely on So­cial Se­cu­rity for most of their re­tire­ment income. A sur­vey re­leased in May by the Fed­eral Re­serve found that a quar­ter of work­ing Amer­i­cans had saved noth­ing for re­tire­ment.

The shrink­ing of So­cial Se­cu­rity’s as­sets ex­pected in 2020 would mark a sig­nif­i­cant change in the pro­gram’s cash flow, one that could com­pli­cate Amer­i­cans’ re­tire­ment plan­ning – even for the many rel­a­tively af­flu­ent cit­i­zens for whom So­cial Se­cu­rity is still a ma­jor source of income in old age.

“Fif­teen years is re­ally just around the cor­ner for peo­ple plan­ning their re­tire­ments,” said John B. Shoven, a Stan­ford econ­o­mist who is also af­fil­i­ated with the Hoover Institutio­n and the Na­tional Bureau of Eco­nomic Re­search.

“The cuts that are be­ing pro­jected would be ter­ri­ble for a lot of peo­ple,” he said. “This needn’t hap­pen and it shouldn’t hap­pen, but we’ve known about these problems for a long time and they haven’t been solved. They’re get­ting closer.”

So­cial Se­cu­rity has a long­known basic math prob­lem: more money will be go­ing out than com­ing in. Roughly 10,000 baby boomers are re­tir­ing each day, with in­suf­fi­cient num­bers of younger peo­ple en­ter­ing the work­force to pay into the sys­tem and sup­port them.

And life ex­pectancy is in­creas­ing. By 2035, So­cial Se­cu­rity es­ti­mates, the num­ber of Amer­i­cans 65 or older will in­crease to more than 79 mil­lion, from about 49 mil­lion now. If the pro­gram has not been re­paired, they will en­counter a much poorer So­cial Se­cu­rity than the one se­niors rely on to­day.

Un­der cur­rent law, cuts would start in 2034, when the main trust fund is ex­pected to be de­pleted, or in 2035, if Congress au­tho­rizes So­cial Se­cu­rity to pay old-age ben­e­fits through the Dis­abil­ity In­sur­ance Trust Fund.

Con­sider a woman with av­er­age an­nual earn­ings of $51,795 (in cur­rent dol­lars) over the course of her ca­reer, who re­tires at age 67 in 2037. The lat­est So­cial Se­cu­rity study in­di­cates that she will be en­ti­tled to $27,366 in inflation-ad­justed ben­e­fits. But if the trust fund short­fall has not been reme­died, So­cial Se­cu­rity would be per­mit­ted to pay her only $21,669 – a 21% cut.

Nearly every older Amer­i­can would be af­fected, but those at the low­est income lev­els would be hurt the most. So­cial Se­cu­rity ben­e­fits are pro­gres­sive, pro­vid­ing greater as­sis­tance for those with greater need.

Ac­cord­ing to a study by the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties, 9% of all re­tirees lived in poverty in 2017 – but the fig­ure would have been 39% if not for So­cial Se­cu­rity.

The re­duc­tions of roughly 20% on av­er­age are just a start­ing point. If cur­rent laws are un­changed and cur­rent eco­nomic pro­jec­tions re­main in­tact, the cuts would rise to 25% in later years, a New York Times anal­y­sis of So­cial Se­cu­rity data in­di­cates.

Un­less Congress and the White House reach an agree­ment be­fore the trust funds are emp­tied, most Amer­i­cans will face hard choices: de­lay­ing re­tire­ment and work­ing longer if they can, or simply sur­viv­ing on less.

Cut­ting the So­cial Se­cu­rity checks of peo­ple in re­tire­ment is, to say the least, po­lit­i­cally dan­ger­ous.

David Stock­man, Pres­i­dent Ronald Rea­gan’s bud­get di­rec­tor, tried to do just that in 1981. What hap­pened in that episode gives some clues for a pos­si­ble solution to­day.

Like other con­ser­va­tives of that era, Stock­man viewed So­cial Se­cu­rity as a form of “closet so­cial­ism” that needed to be scaled back. With the pro­gram fac­ing a sol­vency cri­sis, he pro­posed im­me­di­ate re­duc­tions in re­tirees’ ben­e­fits.

Older Amer­i­cans re­belled, and mem­bers of Congress lis­tened to them. “I just hadn’t thought through the im­pact of mak­ing it ef­fec­tive im­me­di­ately,” Stock­man ob­served rue­fully in his 1986 book, “The Triumph of Pol­i­tics: Why the Rea­gan Revo­lu­tion Failed.”

A nim­ble politi­cian, Rea­gan re­jected Stock­man’s rec­om­men­da­tions and formed a bi­par­ti­san com­mis­sion to study the is­sue. Ul­ti­mately, Rea­gan reached a long-term agree­ment with the Demo­cratic speaker of the House, Thomas P. O’Neill Jr., who viewed the preser­va­tion of So­cial Se­cu­rity as es­sen­tial.

While they made no im­me­di­ate cuts in So­cial Se­cu­rity checks, they re­duced ben­e­fits in more sub­tle ways, us­ing mea­sures that are still be­ing used, like grad­u­ally de­lay­ing the stan­dard re­tire­ment age from 65 to 66, where it stands to­day, and even­tu­ally to 67.

Taxes in­creased, too – bol­ster­ing cash flows and creating the trust fund sur­pluses that have given re­tirees and cur­rent politi­cians some breath­ing room.

But in ways large and small, the Rea­gan-O’Neill So­cial Se­cu­rity fix is com­ing un­done. No­tably, the hefty balances in those trust fund ac­counts to­day – some $2.9 tril­lion – may be having an un­in­tended con­se­quence.

“The trust fund sur­pluses were in­tended to pro­vide a buf­fer that would give politi­cians enough time to show some fis­cal re­spon­si­bil­ity,” said Robert D. Reis­chauer, a for­mer So­cial Se­cu­rity trustee who was also head of the Con­gres­sional Bud­get Of­fice and is now pres­i­dent emer­i­tus of the Ur­ban In­sti­tute. “But the prob­lem is that with­out an im­me­di­ate cri­sis, the politi­cians don’t have to act. And re­ally, they would rather sleep. So when the cri­sis even­tu­ally comes, as it will, it is likely to be much, much worse be­cause of the de­lay.”

John Co­gan, a pro­fes­sor of public pol­icy at Stan­ford Univer­sity, said So­cial Se­cu­rity’s fundamenta­l prob­lem was that ben­e­fits had been rising faster than rev­enue. Cuts, he said, will be un­palat­able but in­evitable.

“The solution, I think, is to slow the growth in real ben­e­fits promised to fu­ture re­cip­i­ents,” he said.

Democrats in Congress have sug­gested an in­crease in So­cial Se­cu­rity ben­e­fits, ac­com­pa­nied by higher taxes for the wealthy.

In com­bi­na­tion, the bill’s var­i­ous mea­sures would elim­i­nate the pro­gram’s financial short­fall, ac­cord­ing to pro­jec­tions by Stephen C. Goss, the chief ac­tu­ary of So­cial Se­cu­rity.

Con­ser­va­tives con­tinue to push for sharp re­duc­tions in the size of So­cial Se­cu­rity as well as Medi­care, say­ing the United States can’t afford the grow­ing bur­den of the two “en­ti­tle­ment pro­grams.”

New York Times

Rosly Ray checks on her ben­e­fits at a So­cial Se­cu­rity video kiosk room in Quincy, Fla.

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