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Straight talk about Social Security


Thanks to President Biden’s State of the Union speech, the debate over the future of Social Security has made it into the front-page headlines.

Perhaps now we can, once and for all, dispense with the urban myths about Social Security that up until now have colored the debate. Regardless of how we think Social Security’s challenges should be met, it’s essential for this debate to be based on cold, hard facts.

That unfortunately is not the case currently.

Where’s the ‘crisis’?

To begin with, take the widely-repeated assertion that Social Security is facing a “crisis.” This simply is not accurate, at least according to the standard dictionary definition of a crisis as “a sudden change” or a “turning point.” We’ve known for decades that, as the baby boom generation retires, Social Security’s finances would need to be augmented.

Read: 12 things you need to know about Social Security’s future, explained by the program’s chief number-cruncher

Consider what was known as long ago as 1983, which is when the last major legislative changes were made to shore up Social Security’s finances. Actuaries at the Social Security Administration (SSA) at that time correctly projected that, in light of those changes, the Social Security trust fund would be able to pay out all benefits until the 2030 to 2050 period. Their projections have proved remarkably accurate, as the SSA currently projects that the trust fund will be unable to pay out 100% of benefits starting in 2034.

Read: Yes, Republicans want changes to Social Security and Medicare entitlements—because some changes are needed

So we’ve known for four decades that fixes would need to be made by 2030 or soon thereafter. There’s no more of a Social Security funding “crisis” now than at any point since 1983.

It’s also worth recalling how long it took our politicians to enact the 1983 legislation. SSA actuaries for many years prior had projected that the trust fund would be unable to pay out 100% of benefits beginning in the early 1980s, and as that insolvency date approached the deadline for action was pinpointed as July 1983. Yet the Social Security Amendments of 1983 weren’t signed into law by then-President Reagan until April 20, 1983—with just 10 weeks to spare.

It’s difficult to imagine how legislation in coming years to shore up Social Security’s finances will be enacted with more of a lead time than in 1983. But even if we match the lead time for that year’s legislation, we shouldn’t expect the next round of changes to be enacted for at least another a decade.

It’s irrational to wait that long, to be sure, since it becomes costlier to restore Social Security’s finances the longer it is delayed. But kicking the can down the road is what politicians do. Their behavior does not constitute a crisis.

The Social Security trust fund already is empty

Another falsehood about Social Security that is widely repeated is that the Social Security trust fund is already bankrupt, since there is no money left in it—it’s already been spent by the government. But that represents a fundamental misunderstanding of basic accounting.

By law, the SSA must invest any surplus in the Social Security trust fund in U.S. Treasurys. In return, SSA carries those Treasurys on its balance sheet as an asset. To claim that the Social Security trust fund is broke is therefore equivalent to claiming that every corporation that owns Treasurys needs to wipe those assets off its books too.

for example, has over $30 billion in U.S. government securities on its balance sheet, according to its latest annual report. Surely no one thinks those assets are worthless.

What if Congress never can agree on any changes?

Yet another aspect of this debate that needs correcting is the worry among many eventual Social Security recipients that, if Congress can’t agree on making any changes, they will receive nothing after 2034. That’s not true, and to claim that it is the case is little more than scaremongering. According to SSA, they would still receive 77% of benefits. That’s not great, by any means, but neither is it the end of the world.

Martha Shedden, co-founder and president of the National Association of Registered Social Security Analysts, points out that even if only three quarters of scheduled benefits get paid, Social Security will still be the primary source of income for many, if not most, retirees. So it’s not clear how your retirement planning would change even if you believed that our politicians would let the Social Security trust fund become unable to pay 100% of benefits.

The bottom line? Everyone can agree that Social Security’s finances need to be changed. But a “crisis” mentality is not conducive to having a sober and earnest debate about how to make those changes.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected].


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