Now that Labor Day is behind us, the election season will heat up, meaning that accusations and assertions will fly from both sides on the campaign trail. Candidates who commend ideas to strengthen Social Security along the lines of the Simpson-Bowles Fiscal Commission will be prime targets.
The Social Security program has been paying out more in benefits than it collects in revenues from 2010 and is projected to run increasingly larger shortfalls as more baby boomers retire. It is true that the Social Security trust fund has $2.8 trillion in assets reflecting prior surpluses that were lent to the general Treasury, but those reserves will be rapidly drawn down and completely exhausted in less than two decades. The Trustees who oversee Social Security’s finances recently warned in their Annual Report that its trust fund will become insolvent in 2033, which will trigger an across-the-board benefit cut of 23% for all recipients regardless of income at that point. Congress and the President will need to enact reforms to bring Social Security spending and revenues in line before then to prevent trust fund insolvency and the resulting benefit cut.
Putting reforms in place sooner rather than later will ensure that the changes are less abrupt and painful. That’s because acting sooner will allow more time for savings to accumulate and spread out the changes among more age groups. It will also allow workers more time to plan and prepare for changes.
The Simpson-Bowles plan provides a useful model of what a balanced plan could include for putting Social Security on a sustainable path for generations to come. The plan places the heaviest burden of the changes on the wealthiest while providing higher benefits for those who rely on Social Security the most. As the Commission stated in its report:
The Commission proposes a balanced plan that eliminates the 75-year Social Security shortfall and puts the program on a sustainable path thereafter. To save Social Security for the long haul, all of us must do our part. The most fortunate will have to contribute the most, by taking lower benefits than scheduled and paying more in payroll taxes. Middle-income earners who are able to work will need to do so a little longer. At the same time, Social Security must do more to reduce poverty among the very poor and very old who need help the most.
The Simpson-Bowles plan would slow the growth of Social Security benefits compared to current law, but all future beneficiaries would still receive a higher level of benefits than current retirees, even after adjusting for inflation. The increase would be less for high-income workers. Meanwhile, the plan would create a new minimum benefit for low-income workers that provides greater poverty protections than the current system and would grow with wages, providing enhanced retirement security for those who need it the most.
To preserve Social Security’s future without drastic benefit cuts, relatively minor modifications will have to be made such as a more accurate measure of inflation for cost-of-living adjustments and a very gradual increase in the retirement age over the course of several decades. Because life expectancies are increasing, the result will be that retirees will still spend more years in retirement and receive greater benefits over their lifetime than under the current structure. Elderly retirees and long-term disabled individuals who have been receiving benefits for 20 years and are at greatest risk of having depleted their savings would receive an extra bump in benefits, with a proportionally greater bump up for lower income beneficiaries.
In short, the Simpson-Bowles Social Security plan demonstrates that it is possible to make Social Security financially sound while ensuring future retirees receive greater benefits than current retirees and providing greater protections for the most vulnerable in society.
Embracing Social Security reform that strengthens the program’s finances while staying true to its aims is the responsible thing to do. It is the opposite to attack those who do so while not putting forward an alternative that will fully close the long-term funding gap.