According to a recent study by Nationwide, 49% of adults who have been retired for 10 or more years rely primarily on Social Security for their income, while 43% of recent retirees are in the same boat. It is great that they have this safety net to fall back on, but the fact that so many of our retirees are so reliant on this benefit is clearly a reflection of the poor state of our retirement industry. An industry where defined benefit pension plans have mostly disappeared within the private sector and one in which folks are forced to depend on their ability to fund, manage, and disburse a retirement plan.
Worse than having so many need this benefit, is the fact that many in Congress, past and present, truly believe that monies “set aside” in the Social Security Trust Fund will not be able to meet future needs (see the chart below) and that significant changes must be brought about to “rescue” this vital program.
By thinking that the U.S. Government will not be able to meet future Social Security payments, Congress has been fretting about how to “save” this benefit for the generations of retirees to come. Some of those considerations include:
- Reducing benefits (always the most obvious fall-back position)
- Raising the Social Security tax rate (presently 12.4%, split between employee and employer).
- Raising the amount of income subject to Social Security tax (capped at $128,400 in 2018).
- Raising the full retirement age once again. It is currently either 66 or 67 depending on the year in which you were born.
- Reducing annual cost-of-living payouts (COLAs). Seniors are already short-changed through the use of CPI-U and not the CPI-E. A further hurdle in getting annual increases might just prove devastating to millions.
Given how critically important Social Security is to the livelihoods of so many Americans, it is almost inconceivable that Congress would act to dramatically alter this benefit. I would like to encourage them instead to spend some time reading Warren Mosler’s brilliantly insightful book, “The 7 Deadly Innocent Frauds of Economic Policy”, which clearly lays out the case that the U.S. Government can always meet its debt obligations, including Social Security.
As a reminder, the U.S. enjoys the benefits of having a fiat currency. The potential impact from spending what is necessary to meet future Social Security needs is to create demand for goods and services that exceed our country’s ability to meet that demand. Currently, that is not an issue as we have an abundant and underutilized capacity. Furthermore, and according to Mosler, “we know that the government neither has nor doesn’t have dollars. It spends by changing numbers up in our bank accounts and taxes by changing numbers down.”
Lastly, we have the capability and means to improve our retirement industry, and therefore the lives of our future retirees. Let’s challenge ourselves to look beyond the status quo before a greater share of our population is primarily relying on the Social Security system during their “golden” years!