Will you receive your Social Security check? It's a question that's about to divide generations and confront politicians. AARP is creating a national campaign to get this serious issue discussed in the presidential campaign. So far, however, candidates at both the presidential and congressional level have shown little inclination to face up to the oncoming crisis.
The facts are simple, according to the Social Security Trustees report. The main Social Security trust fund has a surplus that is invested in special U.S. government bonds. Three years from now, in 2019, Social Security's total income receipts from payroll taxes and interest will start to fall behind the total cost of benefit payouts on an annual basis. After 2019, additional money will be taken out of the Social Security trust fund to pay benefits by selling some of those IOUs from the government.
But by 2034, if no action is taken now, the fund will run out of assets (bond IOUs) to sell. So it will pay benefits out of that year's income from the payroll tax. At that point, it's projected that the federal government will collect only enough in payroll taxes to pay about 75 percent of promised benefits.
And the problem could become even more acute, because the Social Security disability trust fund almost ran out of money last year, and Congress authorized it to “borrow” money from the old age and survivors fund.
What can be done? AARP has laid out the pros and cons of twelve potential options on its website in a nonpartisan attempt to get the discussion going. You'll find it by searching for “Updating Social Security for the 21st Century.”
Those options include: raising the retirement age; indexing for longevity; increasing or eliminating the payroll tax cap, which currently stops FICA deductions at $118,500 of income; increasing the payroll tax rate; and reducing benefits for high earners. Needless to say, they are all controversial.
But without some meaningful compromise, disaster lies ahead. Of course, the government could always go ahead and simply “print” the money to pay Social Security benefits. It's easy to forget, given today's economic environment, that inflationary money printing can be devastating, especially to seniors.
Borrowing isn't the answer, either. The government is already “borrowing” from the Social Security trust fund's accounting surplus that was built up as a result of tax increases and retirement age changes made in 1983 in anticipation of baby boomer retirement. But that surplus has been used to reduce the government's huge operating deficit each year — money borrowed out and replaced by IOUs from the Federal government. Soon, these “special purpose Treasury notes” in the trust fund will have to start being cashed in to pay benefits.
When I recently participated in one of AARP's panel discussions before a group of seniors, it quickly became obvious that this issue has the power to divide the generations decisively.
A very bright millennial policy expert on the panel announced that her generation would like a “choice” of paying into Social Security or into a private retirement account. She made it very clear that young workers don't trust the government to keep its promises. They can do the math.
The crowd of seniors gasped in shock. Without today's young workers paying into the system, seniors and those approaching retirement have no hope of receiving full benefits in their retirement years.
The rebellion has started. Today's millennial issues mostly are focused on free tuition and ending the burden of student loans. But as the realization of the Social Security dilemma spreads, you can be sure they'll be voting in the next election in numbers that balance out their elders who want to preserve Social Security in its present form.
And that is the reason why our politicians simply must treat the issue of retirement security as seriously as immigration reform and terrorist protection. Generation warfare would destroy our country from within. And that's The Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books. She responds to questions on her blog at TerrySavage.com.