Another year has passed with our leaders in Washington doing exactly nothing to fix Social Security. As this week’s report from the program’s trustees makes clear, inaction is costly; and time is running out to secure the program.
According to the trustees, the Social Security trust fund will become insolvent by 2034, at which point all beneficiaries regardless of age or income will face an immediate 21-percent benefit cut.
2034 might seem far away, but as our interactive tool shows, it’s really not. Consider the following:
- A 50-year-old today will be one year short of the full retirement age when the trust fund runs out, at which point their scheduled benefits will lose 22 percent of their value. If they earn typical wages and have an average life expectancy, that’s a $110,000 cut in lifetime benefits.
- A 30-year-old, meanwhile, stands to lose over $150,000 as the trust fund runs out when they turn 46.
- Social Security will be insolvent before my one-year-old daughter is old enough to vote; she stands to lose $260,000.
{mosads}Social Security’s looming insolvency is also now close enough to impact many current retirees and disabled workers. Today’s youngest retirees will be 78 years old when the trust fund runs out, and although it is too late to ask those retirees to significantly adjust their work or savings habits, they won’t be protected from a sudden and abrupt benefit cut if the program isn’t fixed.
Of course with relatively straight-forward legislation, Congress could protect today’s retirees, and they could maintain retirement security for Americans of all ages. Sadly, each year they wait makes the problem harder to solve. Actually, it’s already harder.
Take the favored option on the left: eliminating the cap on wages subject to the payroll tax. Back in 2010, SSA estimated that change alone would give us 14 years of surpluses and 75 years of solvency. Today, that proposal would result in only eight years of surpluses and 44 years of solvency.
Or take an idea from the right: to replace the current “wage indexing” of initial benefits with “price indexing” so future generations get the same benefits as current ones. Back in 2010, that change alone would have been enough to assure permanent solvency. Today, that policy would extend the trust fund only a couple of years.
And waiting longer will only make the problem harder to solve. What could be achieved with a 22 percent tax hike or 17 percent benefit cut today would require a 31 percent tax hike or 23 percent benefit cut if we wait until the year of insolvency.
Even those numbers paint an unrealistic picture, because they assume a willingness to impose steep nominal benefit cuts and sharp tax increases — and to cut benefits for those already in retirement. Realistically, policymakers only have little time to make the types of gradual policies necessary to fix Social Security.
If they act thoughtfully, they can put together a package that protects retirement security, promotes economic growth, enhances benefits for those who rely on the program most and gives workers time to plan and adjust. In only a few years, such a plan will no longer be possible.
It’s time for demagogues on the left and right to put away the talking points and start working together on a solution that does right by our grandchildren, our children, current retirees and, yes, ourselves. The clock is ticking.
Marc Goldwein is the senior vice president and senior policy director for the Committee for a Responsible Federal Budget.