On her blog, Cassandra Devine balks at the prospect of paying for the baby boomers' Social Security benefits. Her "modest proposal" for...
DALLAS — On her blog, Cassandra Devine balks at the prospect of paying for the baby boomers’ Social Security benefits.
Her “modest proposal” for sparing the younger generation that expense: Pay retirees to commit suicide.
“Our parents, the boomers, dodged the draft, snorted cocaine and made self-indulgence a virtue. I call them the Ungreatest Generation. Here’s their chance, finally, to give something back,” she writes to fellow 20-somethings.
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Yes. The incendiary Devine lives only in the pages of satirist Christopher Buckley’s latest novel, “Boomsday.”
Still, Buckley’s work of fiction feeds off some people’s fears that the government’s retirement program will fall apart soon.
For many, that fear will become a big step closer to reality Jan. 1, when the first baby boomers — 78 million Americans born from 1946 through 1964 — turn 62 and qualify for early Social Security benefits.
But most experts agree that any suggestion the system will collapse and leave younger workers unprotected is as nonsensical as Buckley’s bitter blogger.
“To say, as some politicians have, that Social Security is going broke is not just wrong but also counterproductive,” said Thomas Saving, a Social Security trustee and director of the Private Enterprise Research Center at Texas A&M University. “It needlessly scares people.”
A number of policy analysts are using the Jan. 1 milestone to offer solutions and ease fears about Social Security.
They’re issuing position papers, sponsoring symposiums and appearing on TV talk shows to address misconceptions about the system’s future and discuss steps needed to ensure its long-term solvency.
“Social Security can afford 78 million boomers and, with some reforms, future generations as well,” said Virginia Reno, vice president for income security at the National Academy of Social Insurance.
With President Bush approaching his last year in office — having shelved his proposal for private retirement accounts in the face of public opposition — the analysts say they hope to start the Social Security debate afresh.
“The public has been led to think Social Security is out-of-date and on its last legs,” said Dean Baker, co-director of the Center for Economic and Policy Research. “Haven’t we been scared enough?”
Most experts say Social Security remains the most dependable source of old-age income.
Unlike sources of retirement income that can dry up toward the end of life, Social Security checks keep coming as long as someone lives, and benefits are adjusted for inflation.
“Just look at how traditional pensions are fading and how 401(k) accounts and private savings are lagging, and you quickly understand the bedrock role Social Security needs to play in retirement,” Reno said.
Social Security’s financial shortfall is neither as big nor as imminent as people may think, Baker said.
Too much has been made of the Social Security trustees’ projection that the system faces $4.7 trillion of unfunded obligations over the next 75 years, said Nancy Altman, author of “The Battle for Social Security: From FDR’s Vision to Bush’s Gamble.”
“That may seem like an insurmountable sum, but it’s actually dwarfed by the cost of extending the 2001 and 2003 federal tax cuts over the same 75 years, which will be $14.4 trillion,” she said.
For the near term, Social Security is in good shape, experts say.
Social Security will run a $189 billion surplus this year, after collecting payroll taxes from workers and employers and paying promised benefits. The annual tax surpluses will continue for about 10 years and total an inflation-adjusted $4.5 trillion by 2016.
Beginning in 2017, however, Social Security will start spending more than it receives in taxes. To cover increased costs, the system first will tap the interest it earns on reserves and then draw down the reserves themselves.
By 2041, Social Security will use up its reserves and be left with only that year’s tax revenue to pay its benefits. At that point, if nothing’s done, the system will be able to meet 75 percent of its monthly obligations.
No one expects politicians to wait until 2041 to act.
Social Security’s surpluses have been loaned to the rest of the federal government — or stolen, critics say, in the biggest accounting fraud in history — and the money will have to be paid back through additional tax collections or more borrowing.
If the cash is raised through the issuance of more debt, as expected, that will tend to push interest rates higher.
Indeed, then-Federal Reserve Chairman Alan Greenspan told Congress in 2005 that financial markets’ anticipation of this increased debt will put upward pressure on interest rates as boomers start to retire. So lawmakers will have an incentive to tackle the problem sooner rather than later.
“There’s no silver bullet — the economy won’t grow itself out of this problem, and private retirement accounts won’t balance the books,” said Thomas Steinmeier, an economics professor at Texas Tech University.
Social Security’s projected shortfall would disappear overnight if lawmakers immediately increased the payroll tax by 16 percent or reduced benefits by 13 percent.
But experts say neither extreme is in the cards. Republicans would quash sharply higher taxes; Democrats would reject slashed benefits.
That leaves policymakers with a smorgasbord of less severe options.
On the revenue side, options include removing the cap on wages subject to Social Security taxes, preserving a limited federal estate tax for Social Security, and investing a portion of Social Security’s assets in stocks to earn a better rate of return.
On the spending side, options include gradually reducing benefits for future retirees who earned higher wages, scaling back the annual cost-of-living adjustment, and raising the age for full retirement benefits.
Some changes already have been made. The normal retirement age, once 65, is now 67 for workers born after 1959. And Social Security is set to replace only 36 percent of the average worker’s earnings by 2030, compared with 41 percent today.
The challenge for the future will be to find the right balance between any more revenue measures and benefit cuts, experts say.
Social Security’s spending is scheduled to grow from 4.2 percent to 6.2 percent of the economy by 2030, so a tax increase that’s too large could drag down economic growth, experts warn.
On the other hand, analysts caution against benefit cuts that are too deep. Twenty percent of beneficiaries live on only Social Security. For two of every three retirees, benefits make up more than half of their income.
An AARP survey has found that six in every 10 Americans want a combination of revenue measures and benefit cuts to fix Social Security. Some 38 percent prefer only revenue increases, while 2 percent opt entirely for benefit cuts.
Alicia Munnell, director of the Center for Retirement Research at Boston College, said the next president may create a bipartisan commission to recommend a mix of tax increases and benefit cuts, as was done the last time Social Security was overhauled in 1983.
As before, the bipartisan solution probably would include measures loved and hated by members of both parties, yet recognized as the only practical way to reach a political compromise, she said.