The Social Security Program’s Future -- and Yours May 30 at The Commons

For more information on Social Security and what we can do to strengthen it for future generations, you are invited to attend a presentation by Puget Sound Advocates for Retirement Action. "Making Retirement Security Real for Everyone" will be held Thursday, May 30 at 7:00pm at the Third Place Commons at the Town Center at Lake Forest Park, 17171 Bothell Way NE, Lake Forest Park. For more information, call 206-261-8110.

Are you worried you're not saving a nest egg for retirement? Most likely your work doesn't provide a traditional pension, so you know you should be putting money into your IRA or your 401(k), but all your paycheck is being eaten up by housing, childcare, or student loan repayments. You have nearly zilch for your old age.

You are not alone. For many of us, Social Security -- our national old age and disability insurance program -- is our only backstop to prevent an impoverished old age.

On average, Social Security will replace 40% of annual pre-retirement income -- for those who can afford to wait till their full retirement age to begin collecting. But 2/3 of all Social Security recipients have not been able to wait -- meaning they have accepted much lower benefits for the rest of their lives.

Even those of us who currently expect to continue working well into our late 60’s and 70’s may well find that we can’t. We may have to drop out of the labor force due to disability or to care for a sick or disabled family member. Or we may get laid off.

A recent longitudinal study tracking people 50 and older found that over half of those who had been in stable employment ended up being laid off or “pushed out” before their planned retirement age. Only 1 in 10 ever found comparably paid employment again. Tech workers in particular may find that they have “aged out” at an even younger age.

The stability of the Social Security Program is becoming ever more critical.

It is no secret that the surplus in the Social Security Trust Fund is projected to be spent down by 2034, after which the program will have to operate on a strict money in/money out basis. Note that this does not mean the program is going broke! It only means that Social Security payments going out would have to be based on the amount of Social Security payroll taxes coming in, which could lead to a 21% reduction in benefits.

Congress can fix this! They have tweaked the program in the past and can do so again. Realistically, there are two broad directions Congress could take to address the issue. Either 1) reduce the benefits being paid out of the trust fund, or 2) increase the funds being paid into the trust fund.

Various proposals have been put forward to reduce benefits, most of which negatively impact younger people, such as delaying the age of full retirement (currently 67 for those born in or after 1960) to 69 or even 70. Since as noted above few people are likely to remain stably employed to 69 or 70, many of them will likely end up taking early retirement.

This means they will be forced to accept a reduced Social Security benefit -- currently as little as 70% of what they would otherwise get, but perhaps even less under new rules -- for life. For them, this “solution” would be worse than the problem.

The other alternative, to increase the funds being paid into the trust fund, has been gaining support. It generally involves raising or eliminating the cap on earnings subject to the Social Security payroll tax -- Federal Insurance Contributions Act, or FICA on your pay stub. (There is currently a cap of $132,900 per year; earnings above that amount are not taxed.).

The Social Security Administration's actuary has projected that eliminating the cap would not only stabilize the trust fund but allow for an increase in benefits. 

Representative John Larson (D-CT), the new chair of the Ways and Means Social Security Subcommittee in the US House of Representatives, has introduced the Social Security 2100 Act, which would preserve and expand the program, including "scrapping the cap"

Which direction will Congress take? Reduce benefits, which would primarily impact younger people? Or scrap the cap, which would primarily impact higher earners? Look for contentious debates in the coming election cycle!