Other Voices

At 75, Social Security isn’t ready to retire

Saturday marks the 75th anniversary of the first benefit check provided by the Social Security System, a $22.54 payment made to Ida May Fuller of Ludlow, Vt.

The milestone is cause for celebration, but future retirees must also raise their voices for reform.

Social Security has to be deemed one of the most successful federal programs in history.

In 2013, the program provided benefits to about 41 million retirees and their dependents, 6 million survivors of deceased workers and 11 million disabled workers and their dependents.

It would be a rare politician who would call for its abolition, and for good reason.

For an alarming number of Americans, Social Security is the only resource standing between what should be their golden years and a retirement of dross.

Social Security provides at least half of total income for approximately 52 percent of aged beneficiary couples and more than 90 percent of income for 22 percent of such couples.

And don’t look for a lessening of need in the future. Only about 45 percent of workers of ages 26 through 61 participate in any employer-based retirement plan.

Of workers who actually have some sort of pension plan, 78 percent have 401(k) accounts or are members of comparable plans that rely for retirement income on the resources accumulated in his or her own personal account.

Regrettably, the median balance in such accounts for workers approaching retirement is a measly $111,000, barely enough to provide for even basic necessities for a person who might live 30 years past the typical retirement age of 65.

By default, these future retirees will have to rely heavily on Social Security for their livelihood.

But despite the fears of many young people today, Social Security is not at risk of an early fiscal demise.

Assuming a modicum of political responsibility on the part of Congress and the president, even the youngest of workers can be reasonably confident that both they and even their children and grandchildren will be program beneficiaries after they retire — if appropriate reforms are made now.

Currently, by law, Social Security payroll taxes must be placed in dedicated trust funds and benefits can only be paid out of those funds.

Since 2010, outflows for benefit payments have exceeded the inflows from payroll taxes, and the projected funds will be depleted by 2033.

The ongoing income of the funds would be sufficient to pay only 77 percent of scheduled benefits.

Whereas Congress could change the law to permit the shortfall to be made up with general tax revenues, in light of the long-term deficits facing the federal government, it is highly unlikely that it will do so.

To ensure that trust funds are not emptied out, we must increase revenues or decrease benefits.

Raising the payroll tax by 1.5 percent on both employers and employees, and raising the cap on earnings subject to the tax, currently $118,500, to say $220,000 would go a long way in ensuring those revenues are increased.

On the flip side, policymakers could consider reducing benefits by increasing the age at which retirees receive full benefits, from age 67 to age 70.

They could also eliminate or modify the automatic cost of living increases, or apply means testing to the benefits so that higher income retirees receive reduced payments.

Each of these changes will obviously be painful to some but are made necessary by the changing demographics of our society.

Life expectancy has obviously increased during the past 75 years.

In 1945, there were 7.25 people of working age for every person over 65. By 2090, that number will shrink to only 2.29 workers.

When Fuller died in 1975 at age 100, she had collected $22,288.92, compared with her total contributions of $22.75. Social Security cannot ensure that other Americans will enjoy such a spectacular return on investment.

What it can provide in the future (with wise reforms made now) is a basic standard of living for the most vulnerable of our citizens.

Michael Granof is the Ernst & Young Distinguished Centennial Professor of Accounting and Distinguished Teaching Professor of Business and Public Affairs at The University of Texas at Austin.

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