A plethora of bills are routinely introduced in every new Congress, mostly by Democrats, promising higher benefits, whether in the form of cost-of-living adjustments, one-time payments, or permanent minimum benefit increases. The problem with all of the proposals, which are intentionally written to be appetizing to the public, is they blindly ignore two fundamental facts—how Social Security retirement benefits actually work and the very real, unstable long-term health of the program itself.
First, Social Security is not a welfare program, nor should it ever be deemed as such or turned into one if it is to continue to work as intended and have the broad support of Americans that it now does. Retirement benefits are paid based on a formula that accounts for the highest 35 years of earnings in one’s working years. The formula is progressive in that lower-income workers will receive a slightly higher replacement of their pre-retirement income, about 40 percent. But the fact remains that someone who worked an entire career for $8.00 per hour will get a very different monthly retirement benefit than someone who made a six-figure salary for most of their career. Of course, the latter paid far higher payroll taxes into the system too.
The program was never intended to be the sole part of a retirement plan. Pensions (traditional, defined benefit or 401k style plans) and savings from a lifetime of work make up the other pillars of a sound retirement. A failure to save has never been a reason to boost benefits across the board. The program does protect the buying power of recipients’ benefits. Automatic cost of living adjustments tied to the inflation rate is paid to all receiving Social Security benefits each January 1.
The fact that benefits can never decrease, only increase, is significant yet often not appreciated. This aspect should be specially noted given the recent pandemic. Many wage earners, especially those in the hard-hit service sector, lost their entire paychecks when companies shut down, while others had their hours cut back significantly. But Social Security benefit payments continued unabated and uninterrupted. Nearly all retirees would admit that the pandemic left them unscathed, at least financially speaking. Even so, three rounds of stimulus payments from April 2020 through March 2021 went out to all lower, middle, and many upper-middle-income retirees, not just workers affected by loss of income. The cumulative amounts totaled up to $3,200 per person and $6,400 per married household. That has increased the buying power of Social Security recipients in a fashion not previously seen.
Second, Social Security has a looming insolvency problem. Demographics are beginning to undo a social contract that was made when the Social Security Act was passed in 1935. People now live up to 20 or more years longer on average than in 1935, yet Congress has never adjusted the full retirement age but one time, in 1983, and by just two years. With a 25-30% reduced benefit, early retirement can still begin as early as age 62. Consider too that families are having far fewer children, meaning payroll taxes that fund the entire system are declining.
Social Security’s Board of Trustees has been sounding the alarm for years that the program will only be able to pay about 76% of promised benefits under current law starting in 2034. Other experts think the pandemic will accelerate that date forward by several years.
What does it all mean? In simplest terms, beneficiaries will wake up one day a decade from now and receive a benefit 24% less than what they expected in their direct deposit accounts. It will happen automatically. No vote in Congress. No debate or discussion. That’s the law. Social Security can only payout that which it collects or has accumulated in surpluses. Past surpluses are being expended now to keep benefits from being cut, but these will be depleted in about a decade.
Congress can fix the problem by reforming the Social Security program. But fixes become more difficult and painful the longer Congress waits. Essentially, to shore up its finances, there are three options—cut benefits, raise taxes, or increase the retirement age. That’s about it. Of course, a mix of any of those three can be applied as well, as in perhaps trimming benefits for the highest income earners.
Why hasn’t this happened already? Simple. It’s too juicy to wait for anyone to propose a solution and hit him/her with, “Rep. or Candidate (fill in the name) wants to cut Social Security” or “he/she is throwing Grandma off the cliff.” We’ve heard these absurd lines in commercials and in campaign literature for years. Why would anyone propose a solution in such a toxic environment? Answer—few do, and thus the problems build.
The bottom line is the public writ large needs to understand Social Security’s financial problem so as not to fall victim to members of Congress looking only at the next reelection with lines like, “I pledge to increase everyone’s Social Security benefits.” It’s a popular thing to say, and that is why so many members propose benefit hike bills. But it’s incredibly disingenuous. The tough, courageous, and righteous stance is to advocate for reforming the program so that it will remain sound and stable and continue to exist as we know it for future generations.
AMAC has such a plan— the Social Security Guarantee. The purpose is to preserve and modernize the program without raising taxes on workers. One component is Social Security PLUS, a voluntary companion benefit (not privatization of the main program) that would allow all workers to have more money in retirement. See the full plan here.
Jeff Szymanski works in political communications at AMAC, a senior benefits organization with 2.4 million members. This piece is part of an on-going attempt to inform Americans of the reality of Social Security’s precarious financial situation and to promote AMAC’s plan to preserve and modernize the program for successive generations.
We hope you've enjoyed this article. While you're here, we have a small favor to ask...
Support the AMAC Foundation. Our 501(c)(3) powers the AMAC Foundation’s Social Security Advisory Services. This team of nationally accredited advisors offers on-time, on-the-mark guidance for those approaching or receiving Social Security – at no cost.Donate Now