Social Security

Johnny Johnson, Staff Writer

Published: October 3, 2008

Right now, Social Security, with its $2.2 trillion surplus, is by all accounts doing quite well.

But if nothing changes, economists predict that in just 33 years, the entire surplus will be spent and the program will begin operating in the red.

It’s a sobering announcement that raises an obvious question of concern with younger workers — will Social Security be around when I retire?

As a local spokesman for the Social Security Administration, it’s a question Larry Jones gets asked all the time.

“A lot of people say ‘I don’t think it’s going to be there for me,’” Jones said. “And my response to that is ‘Where’s it going to go?’ I mean you are paying taxes, aren’t you? Then there is a system in place that works. It’s successful and it’s very popular.”

The problem

John Milner, an economics professor with Oklahoma City University, said when the basic idea for the Social Security Act was pitched in the 1930s, it was an easy sell.

“If you start with a program that was pay as you go where a very small population lives long enough to collect Social Security, and those that do collect it would only collect for a small number of years ... this is not a program that is difficult to create and support,” he said.

But over time some things changed. There was the population spike by the baby boomer generation, and there were advances in medicine, which have allowed more people to live longer, meaning more people collect Social Security for much longer periods, Milner said.

And with 77 million expected to be on Social Security by 2030, Jones said every day 10,000 people turn 62, making them eligible for Social Security.

“That’s 10,000 today, 10,000 tomorrow, and so on,” Jones said.

The other demographic factor affecting Social Security is how much America’s birthrate dropped after the boomers, Milner said. Before 2007, the largest number of American births occurred in 1957.

“You really have two major problems,” he said. “There are more people going into retirement and fewer people entering the workforce. One thing the people who thought about Social Security never saw happening was a rapid decline in birthrate.” Those combined factors have not affected the program adversely up to this point, Milner said. But it’s coming.

“Social Security looks really good, right now,” he said. “Just make sure you don’t put on the glasses and look very far into the future.”

The fix

Jones acknowledges that the next presidential administration will most likely be given the burden of “fixing” Social Security.

There’s no easy answer on how to best fix it, and there some very different plans on how the nation should address the issue. Jones, however, is not worried.

“I have confidence that changes will be made to avoid the solvency issue,” he said. Milner is not as confident.

“I’m concerned,” Milner said. “I’m fairly certain that politicians are not going to demonstrate the willpower necessary to bring the population around to facing reality.”

There are a series of proposed Band-Aid solutions that would possibly sustain the program for the immediate future, but most of the strategies Milner said he hears politicians talking about are simply “fiddling at the edges.”

One solution that was generating controversy eight years ago was to invest the money and let Wall Street handle it. But with the recent financial meltdown, Milner said he expects those arguments to go away for a while.

“When we take a look at what has happened with investment banks ... if Social Security had truly been (privatized) and these investment banks had been handling it, we would now have an awful lot of destitute seniors,” he said.

And because the American government is a social environment, it would now be helping to pick up the checks as it is doing for some of the investment banks, Milner added.

“What we have is a systemic problem with no simple fix,” he said. “If you were serious about doing something here – the answers are like doubling tax rates, or halving benefits. That’s the scale of the issue we are looking at. These are big, big changes coming, and I can’t think of a single person who really takes seriously the idea of get elected on beating the drum of increased taxes. It’s hard to raise taxes, but it’s also hard to promise something and then say ‘I’m sorry, but you won’t get those benefits because too many people of your generation are living too long.” Milner’s perspective is that most Americans are living in a deceived world when it comes to what it’s going to take to fix Social Security.

“It’s not that we can’t fix it,” he said. “It’s that we desperately don’t want to have to pay for it.”

Personal commitment

Jones stands by the Social Security Administration’s track record that they’ve never missed a check, and he said as long as people are working and paying taxes, there’s going to be a system to take care of them when they retire.

But people also need to understand that Social Security was never meant to be the only source of income for retirement, but a supplement to a retirement portfolio, he said.

“If you are relying strictly on Social Security, you’re going to be disappointed,” Jones said.

Today’s average monthly benefit is $1,078, which Jones said would have been a sizable sum at one time, but with today’s inflation, may not be enough to meet one’s needs.

That’s why there need to be other forms of income coming in, he said, referring to what he calls the “three-legged stool” of Social Security, savings and pensions.

“If they have all of that, then they are going to be fine and probably live the type of life they want,” he said. “But I have to realize that two-thirds of the pyramid of success is on me.”

But the fact is that a lot of people approaching retirement age have not taken those steps, Jones said.

“While a lot of people are saving and doing the right thing, there are just so many that haven’t,” he said. “And that’s why we even have a system at all is because people haven’t saved.”

Americans 65 and older

1946 — 11 million (8 percent of the population)
2008 — 36 million (13 percent of the population)
*2030 — 77 million (20 percent of the population)
* — Projected by the Social Security Administration

Number of Workers Per Beneficiary

1960 — 5/1
2008 — 3/1
*2030 — 2/2
* — Projected by the Social Security Administration

Social Security Timeline

1935 — Social Security Act passed under President Franklin D. Roosevelt
1935 — One day after federal withholdings began the first lump-sum payment is made to a retired streetcar operator for 17 cents.
1939 — Amendments to allow benefits for survivors.
1950s — First increased benefits, including cost-of-living adjustments.
1983 — President Reagan signs into law the Social Security Amendments of 1983.
2008 — Social Security has $2.2 billion in its trust account.
2008 — Average monthly payment to retirees is $1,078.
*2017 — Projected year that Social Security will begin paying more than it collects in taxes.
*2027 — Projected year benefits begin to exceed combined taxes and trust fund interest.
*2041 — Social Security is exhausted. Only 75 percent of benefits can be paid to retirees.
* — Projected by the Social Security Administration

On the Web:

Social Security official homepage — www.ssa.gov

Fix Social Security in this interactive game —www.actuary.org/socialsecurity/game.html

AARP on Social Security —www.aarp.org/money/social_security/

Presidential candidates on Social Security — www.cnn.com/ELECTION/2008/issues/issues.socialsecurity.html

Johnny Johnson: 475-3930, JJJohnson@Oklahoman.com

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