8
Social Security, by the generations
Social Security supporters attend a rally in the Dirksen Senate Office Building on Capitol Hill.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
Tess Vigeland: All the maneuvering in Washington over the debt ceiling appears to have killed the idea of a "grand bargain." Legislation that could include reform of entitlements like Social Security and Medicare. Social Security's reserves will dry up in 2036 if nothing is done to fix the program. It won't be able to pay out more than it takes in in payroll taxes. That's bad news for pretty much everybody -- from people close to retirement all the way down to toddlers.
Marketplace's Nancy Marshall Genzer decided to take a look at the issue through the prism of her own family.
Nancy Marshall Genzer: On a holiday, no one wants to talk about Social Security. But I did just that over the July Fourth weekend, wrenching my family away from talk of baseball and kids. There were a few wisecracks from my nephew, Ben, when I asked if he and his friends ever discussed retirement.
Ben Ellert: Honestly though, we usually sit around and watch a football game, and at commercials, we talk about Social Security.
Genzer: Smart aleck.
But eventually, I did get a sense of how each generation of my family has been or will be affected by Social Security. First, my grandmother. She was born in 1907. She was already an adult when Social Security was created. She didn't start paying the payroll tax that funds Social Security until she was in her 30s. Yet she got a steady check in retirement. My parents paid more into the system. They're getting that money back, and then some.
But my generation won't be so lucky.
Beth Ellert: Well, I hope there's some there, but I'm not planning on it being the backbone of my retirement.
That's my sister, Beth. Our brother, Bill, has read a lot about what'll happen to him after the Social Security trust fund runs out about a decade into his planned retirement. He thinks he'll still be getting something from Social Security when he stops working.
Bill Marshall: Well I'm 53, and that would be 10 years to 15 years from now. I'm doing my best to save now so that we don't have to count on Social Security. I think it'll be around, but I don't think the percentage is going to be there that's supposedly there now.
My brother and I used to fight a lot, so I hate it when he's right. If nothing is done to shore up the retirement system, his benefits will be cut by a quarter once the trust fund runs dry in 2036. The next generation will be hit even harder. My brother looks around at his kids, nephews and nieces as he muses about their role in the Social Security saga.
Marshall: And I think for those that might be in their twenties, I would expect it'll continue to be a tax, but I wouldn't plan on any sort of benefit -- because you're going to have to support us old people.
How frustrating. He's right again. If nothing is done before 2036 and Congress doesn't want to slash benefits, it'll have to raise Social Security payroll taxes by a third instead. My nephew Ben is 23. He sums up the feelings of many twenty and thirty-somethings about contributing more to a retirement system they think is on shaky ground.
Ben: I don't feel that Social Security benefits will be around to take advantage of when I'm retirement age.
Ben's 18-year-old sister Leah learned about her status in the Social Security pecking order in high school, from a retiring American history teacher.
Leah Ellert: My teacher was a baby boomer and she was thanking us all for paying for her retirement. And it was a little depressing, a little shocking.
The news gets grimmer the younger you are. My poor little kids are really in trouble. I have two-year-old twin boys. In 2085, they'll be 76. If nothing changes, Social Security won't even be able to pony up three-quarters of promised payments. Benefits will have to be slashed again. My kids sum up their situation better than I can:
Marshall Genzer twins: Uh-oh.
It doesn't have to be this way. Ronald Lee has made a career of studying families like mine. He's a demographer and economist at Berkeley. Lee says we can make some gradual changes to Social Security now to replenish the trust fund.
Ronald Lee: It's definitely true that if we act today, raising taxes and cutting benefits, then it's going to be easier on future generations.
Lee says we could raise the retirement age to 69 or 70, and require the wealthiest Americans to pay Social Security taxes on more of their earnings. A bit of tough medicine now, to avoid howls of pain in the future.
Children screaming
In Washington, I'm Nancy Marshall Genzer for Marketplace Money.
Marshall Genzer twins: Bye, bye.
All of the money that has been collected for boomer retirement has been spent. Only a couple of trillion dollars of fictional IOUs remain. These IOUs have no market dollar and cannot be sold to the Chinese or the Federal Reserve.
Let's support free markets and individual freedom. Make social security a voluntary program. Workers who want to withdraw from the program would be issued a check equal to the amount of "contributions" including those from their employers. I get a letter every year and I have "contributed" about $200,000 since 1968 when I entered the workforce. Ben Bernanke can print the money with ease. Tim Geithner would be happy to send you a check and the IRS will collect the taxes if you are pushed into a higher bracket.
If half of the boomers leave this program then the future liability of the government would fall. Workers who want to stay in the program could take their chances with the federal government. They would still contribute as would their employer.
The same idea could be offered for Medicare. Stay in the program or take a voucher and buy private insurance- it would be your choice. Let every person choose what they want. Stop the fiction that the guy across town is going to pay for your retirement and your medical care. You will have to pay one way or another.
The way the government is going to "solve" this is by destroying the dollar. The Fed has increased the monetary base from $800 billion to $2.7 trillion and the trend is straight up. Prices for everything in dollars will triple in the next 10 years because the money is already printed. It will not be withdrawn and will circulate as the economy slowly heals.
http://research.stlouisfed.org/fred2/series/AMBNS?cid=124 is the link for the graph.
An amazingly uninformative look at an extremely important issue. The absolute worst part was finding an "expert" who thought raising the retirement age to 69 made sense. Had any effort at all gone into this you could have easily found experts who would have pointed out that raising the ceiling on those contributing past the current 106,000 would make the program solvent well into the future. But no--far better to breed fear and social distrust than to propose a solution that affects those in higher income brackets.
The "it just won't be there" mentality is hogwash.
One, please tell me the last time a huge government program (that didn't have a sunset provision built in) just went away.
Two, your focus is on children, who haven't paid into it and thus don't feel a sense of being cheated... yet. Wait til they get to be 30 or 40, with a lot of sunk taxes. They're going to expect them back. It's almost a generational Ponzi.
Three, AARP covers such a large portion of the country, they may as well be the pulse of the country when it comes to the SSA. They're not going to let go of it.
SSA is going to be there as long as we're a country. It'll either bankrupt us, or be a catalyst for our fragmentation. There's no smooth unwinding of this.
I wonder how many people know that the Social Security tax is capped – once someone’s salary goes over $106,800, there are no further taxes on it. I still remember how shocked I was in my first job when I realized that I would be paying the tax all year, while my wealthy and much better paid boss stopped paying it in July. Eliminating the cap would solve whatever shortfall anyone has been predicted, and yet I never see this option considered. I wonder why not. I know there are reasons pro and con for eliminating or at least lifting the cap (as has been done in the past). Why is the possibility not being discussed?
It's quite interesting that a report like this is coming from NPR. And that you've gotten an economist from Berkeley to suggest we raise the retirement age to 69 or 70. There is nothing wrong with social security. There are IOU's in the fund which would keep it intact through 2070 or so. We paid into it and it was looted. Yes, people are living longer, but that does not mean that most people can work until they're 69. There are no jobs for people now - many people are either unable to continue working or unable to find a job at age 60. Oh I know, we can all sell our organs to survive until 69.
Don't present this as a fait accompli that we must increase revenues and decrease benefits. We should increase benefits. Most rational people, when presented with a choice of paying more taxes now and having a secure retirement would accept that.
You really should change the focus of your concern, here. The general consensus that S.S. is not going to be there for you is one that is certainly engineered by those ultra-conservatives who would dismantle it, along with all government entitlement programs. S.S. contributions were increased back in ’83 with the idea of keeping it solvent, and contribution requirements for those who earn over $102k would help to extend coverage in the coming years. But there is no room for more cuts to it; instead, affordable housing and subsidized in-home care might serve to reduce costs for those on fixed incomes. I know an elderly woman (now 90) who saved all her life, owned her own home, had her husband’s railroad pension as well as S.S. to live on, and then saw it all evaporate and lost everything when she came down with Alzheimers. She lives in a nursing home now that rakes in $6000 a month from her, staffed with Latinos who are paid little better that minimum wage, and so is responsibly doing her part to help get investors and all players in the health care insurance industry rich while waiting to die. The more you make (and save), the more they take. It is misleading and disingenuous to portray private, for-profit industries as viable, responsible alternatives to government social services designed to serve need rather than greed. Ironically, the more government programs displace private industry, the more money people save both as taxpayers and consumers. Remember that it is private industry, feeding off of Medicare and S.S., that is driving up costs; not the programs themselves. Get private investors and investment strategies out of the picture, and we might end up with something resembling a decent society with affordable options.
Listening to the story about Social Security and how to encourage people to save more -- try being a single 40-something with an average income trying to help support your 70-something mother who only has social security to live on? I spend on average 5k per year on just keeping her head above water. Nothing will inspire you to save for your own old age like seeing close up and personal how hard it is to live when you never saved anything. I'll have my house paid off in another 5 years, and although my IRA isn't huge, it's more than nothing, which is what my mother has in the bank. And if she lives as long as her own mother, who is now 100, I'm sunk.
