It has been called “the world’s slowest oncoming train.” Congress and the American public have known at least since 2010 that the accelerating retirement of the baby boomers and the decline in the number of workers paying into the system had caused Social Security to reach a financial tipping point.
Still, in a familiar tale of party politics and government paralysis, Congress has done virtually nothing to address the problem. Meanwhile, the date when draconian benefit cuts could be imposed draws inexorably closer.
This week, with our emphasis on Social Security, we’re taking a fresh look at both the problems and the proposed solutions regarding this vital program. Our guide is personal finance reporter Medora Lee, and her recent article from USA Today. Lee alerts us right up front that Congressional inaction on Social Security could “tarnish” the retirement of millions.
Let’s look more closely and see if there’s any grounds for optimism in this important story.
“Golden Years” May Lose Their Luster Unless Congress Acts
Lee dives into her topic with a stark warning.
“Newly retired couples may see their ‘golden years’ seriously tarnished if Congress continues to do nothing to shore up the funds used to pay Social Security beneficiaries,” she writes. Lee quotes research that shows how an average dual-income couple planning to retire in six years could see annual benefits reduced by $16,900.
That figure comes from the nonpartisan, nonprofit Committee for a Responsible Federal Budget (CRFB) think tank. Lee also quotes an analysis by health care cost-projection software firm HealthView Services warning that the cost to this imaginary couple over even a 15-year retirement, assuming nothing changes, will exceed $250,000 in lost benefits.
Latest Estimates: Trust Fund Dries Up in Late 2032
The problem can be summarized in two words: trust fund.
“The trust fund that supplements incoming payroll taxes to pay monthly Social Security benefits is expected to run dry by the end of 2032, according to the program’s trustees,” Lee writes. “When that happens, the law requires benefits to be reduced by an estimated 22 percent to ensure the program’s costs do not exceed its revenues.”
“Social Security’s insolvency is no longer a crisis for future lawmakers to deal with,” CRFB’s report said. “Senators elected this year will be in office when Social Security’s retirement fund is exhausted.”
Social Security Delay Makes the Fix More Costly
As Lee observes, delay is expensive. She writes, “Those [Social Security] losses will only get larger the longer Congress sits on its hands, analysts said.”
The USA Today article adds an additional fact that we hadn’t heard much about. After 2032, the long-term outlook is even more ominous, the CRFB analysis estimates.
“These [22 percent] cuts are projected to grow over time due to the rising gap between Social Security’s costs and dedicated revenues,” the agency warns. “At the end of the century, annual benefit cuts are expected to reach 35 percent.”
Beneficiaries Will See a Wide Range of Lost Benefits
What will happen if, as projected, Social Security benefits are cut by 17 percent in late 2032? Nothing good, say the experts.
“A couple who becomes first eligible for benefits in 2034 will see their average monthly Social Security benefit lose between $161,000 to $194,000 in lifetime benefits,” Lee writes, quoting estimates from HealthView Services. “For a couple receiving maximum Social Security benefits, the reduction is between $425,000 and $509,000.”
This assumes that couples will live to average longevity based on Social Security’s actuarial tables – age 81 for males and 84 for females. But with today’s longer lifespans, it’s easy to see how lost revenues could be far higher.
Lower SS Payments Coincide with Rising Healthcare Costs
It may seem like piling on, but in her article, Lee points out that Social Security isn’t the only federal program for seniors that is facing financial headwinds.
“Even worse, lower Social Security benefits will come around the same time Medicare will have to implement cuts of its own and further squeeze retirees,” she writes.
(Editor’s note: we wrote about rising costs of Medicare last week here on the Blog.)
The problem here, Lee explains, is that the fund that helps pay for Medicare Part A, covering inpatient hospital stays, skilled nursing and other post-acute care services (plus hospice care for Medicare beneficiaries), is expected to be depleted around the middle of 2033, according to the Social Security Administration.
“At that point,” Lee states, “the fund will be able to reimburse providers only 89 cents for every dollar of Part A services provided. That means an 11 percent cut in spending or substantial tax increases will be needed to cover the shortfall, said a Georgetown University blog last month.
Some in Congress are Actually Trying to Make Some Headway
As the USA Today article explains, there are hopeful signs coming from Capitol Hill. Whether that hope will come to fruition is an open question.
Lee writes, “A bipartisan group of senators introduced legislation this week to fast-track any Social Security-saving bills. A bipartisan, seven-member Social Security Advisory Board would draft a bill to keep the program’s trust funds solvent for at least the next half-century, and be introduced in the House and Senate by congressional leaders before being considered by committees, which could hold hearings and revise the legislation.”
As is often the case under Senate rules, in order to become law, any proposed Social Security bill would need the support of 60 Senators. A majority vote in the House is also required.
As With All Things Social Security, Contention Remains
Predictably, the proposal is drawing a mixed reception. “The Bipartisan Policy Center endorsed the proposed legislation as a ‘serious bipartisan process to break the status quo of inaction,’ Lee writes. The Committee for a Responsible Federal Budget also greeted the proposal with enthusiasm.
“However,” says Lee, “AARP said it ‘strongly’ opposes it. The nonprofit, nonpartisan advocate for 125 million Americans ages 50 and older agreed that Congress urgently needs to address Social Security’s finances but saw no reason for lawmakers to farm out that work to another body.”
Congress Has a Predictable but Limited Number of Tools Available
“For years,” Lee notes, “analysts have floated many ideas, but none have gained traction.” Some of the frequently-cited options:
Payroll Tax: some reform advocates suggest that Congress boost the payroll tax that helps fund Social Security, presently at 6.2 percent of income, matched by employers;
Retirement Age: some feel a gradual boost in the full retirement age should be implemented just as was done when FRA was gradually raised to 67 in bipartisan fashion back in 1983;
Benefit Limit: some have proposed a $100,000 ceiling on the total annual Social Security benefit for a couple at full retirement age and a $50,000 limit for a single retiree;
Raise Taxable Income Ceiling: many have urged Congress to raise the cap on earnings subject to Social Security payroll taxes (currently taxes cease on income over $184,500);
Means Testing: some have urged that Social Security benefits should be trimmed for higher-income households.
No matter what solution is proposed, there will be controversy. Yet a solution is imperative, as millions of present and future retirees can attest.
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