Are you worried about Social Security? If so, you’re not alone. According to a recent Gallup poll, 60% of non-retired individuals doubt that Social Security will be able to pay them a benefit when they retire.
Not surprisingly, pessimism is inversely correlated with age. Ask those in the 55+ age bracket and only 26% doubt Social Security will make good on its obligation. But ask those int the 18-34 age bracket, and the number skyrockets to 76%. This pattern isn’t terribly surprising, but it’s interesting nonetheless.
At the same time, 56% of current retirees think that they will eventually see their benefits cut. Just five years ago, only 32% of retirees anticipated a reduction in benefits. That’s quite a change.
Running on fumes
We’ve heard for years that the Social Security system will eventually start paying out more than it takes in. However, this wasn’t supposed to happen until at least 2016. Well… Guess what? Thanks to the recent economic downturn, the timeline has been shortened to this year.
That’s right. According to an article in the NY Times earlier this year, the bleak job market has resulted in more people applying for benefits sooner than expected while revenue because there are fewer paychecks available to tax.
This isn’t to say that the Social Security Administration (SSA) will be unable to meet their near-term obligations, but it’s only a matter of time before they go broke unless something changes.
No news is… troubling?
That NY Times article alluded to the SSA’s forthcoming annual report, which was expected to provide insight into the true financial condition of the system. This report is supposed to be published by April 1st each year, but this year’s report has been postponed indefinitely.
One possibility is that the new legislation will cause employers to substitute higher taxable wages in place of employee health insurance coverage. Likewise, employers that offer so-called “Cadillac” health plans might trim benefits in favor of higher wages. Both scenarios would boost tax revenues and help balance the books.
While this sounds like a plausible excuse, rumors are swirling that the truth is that the Feds are just buying time while they try to figure out how to put a positive spin on what may be a very bleak report.
Fixing the system
So… What about the future?
My personal view is that Congress will do whatever it takes to keep Social Security unchanged for as long as possible. It’s just too popular, and politicians are too self-interested to rock the boat.
Of course, eventually something will have to give. As always, proposals for “fixing” the Social Security system include tax increases, benefit reductions, and delayed eligibility. The longer we wait, the bigger the changes will have to be.
My best guess is that any future reform will involve some combination of all three as opposed to somehow re-inventing the system. But will these things be enough to stave off a collapse?