For decades, policymakers have worried about the financial stability of the Social Security system. With shifting demographics and the steady erosion of the Social Security Trust Fund, the countdown to a possible 20% to 25% haircut on Social Security benefits is now down to less than 20 years. Yet despite persistent calls for Social Security reform, the political realities of the situation have made it clearer than ever that reaching consensus about how to fix any problems with Social Security will be next to impossible. As dire as that sounds, though, there's a good reason to believe that you'll receive your Social Security benefits in full when the times comes -- no matter how young or old you are.
Stuck in the middle with you
The latest controversy on Social Security came this week from presidential candidate Chris Christie, who proposed a plan for Social Security reform that raised the ire of peers on both sides of the aisle. Christie's proposal included two primary provisions: raising the full retirement age and the early retirement age by two years each to 69 and 64, respectively, and imposing a means test on Social Security benefits that would phase them out gradually for those retirees earning $80,000 or more and completely eliminate them for older Americans with incomes above $200,000.
The combination of proposals appeared to be an attempt from Christie to seek bipartisan support by making sure there'd be at least one provision that those in either party could support. Means-testing appeals to those who believe that Social Security should be a safety net rather than an entitlement, and taking away retirement benefits for those who clearly have ample means of support from other sources is consistent with that philosophy. On the other hand, raising the retirement age will go a long way toward cutting the overall cost of the Social Security program generally, and that appeals to those who believe that overall spending on government social programs should get cut.
Instead, Christie's proposal had the opposite effect, drawing criticism from both sides. Many derided the raise in the retirement age, citing the idea that it gives an unfair advantage to those who've worked in less strenuous jobs and therefore have a greater capacity both to work longer and to live longer in retirement. On the other hand, others argued that means-testing Social Security would have relatively little financial impact, but it would have the political effect of disenfranchising wealthier Americans who might then turn around and call for broader-based cuts -- since they'd have nothing left to lose.
Why bipartisan efforts are doomed to failure
This isn't the first time that attempts to take politics out of the Social Security equation have failed. The National Commission on Fiscal Responsibility and Reform, also known as the Simpson-Bowles Commission, released a report in 2010 that had a similar mix of cost-cutting proposals. The Simpson-Bowles recommendations would have raised the retirement age to 69 by the year 2075, indexing it to rising life expectancies. It would also have raised the current payroll-tax wage cap to cover a higher amount of aggregate earned income, as well as using an inflation gauge for cost-of-living adjustments that would have resulted in slower growth in benefits. The program would also have admitted state and local workers and created a new minimum benefit. Yet rather than seeing the proposal as a compromise, advocacy groups generally cherry-picked the provisions they disliked as a reason to reject the entire proposal.
The most realistic outcome for Social Security reform, therefore, is that the program will continue to limp along toward Trust Fund insolvency. At some point in the early 2030s, automatic benefit cuts will get triggered, and then, lawmakers will have a tough choice: whether to let retirees receive less money, or to authorize further spending from government revenue outside the Social Security system. In all likelihood, the easier political decision will be to finance stable benefit payments through deficit spending, and so worrying about the future will have proven to be unfounded.
For your personal finances, the most prudent course is to get yourself into a position in which it won't matter what happens to Social Security by the time you retire. By saving as much as you can now, you'll be more likely to survive a Social Security financial crisis if it occurs -- and to treat the benefits that you'll probably still get eventually as icing on the cake rather than an essential component of your financial survival.