Politics or Poppycock A Look From the Left At Politics, Politicians, Policies and Issues of National Concern

Saul Friedman Gray Matters September 27, 2008
Newsday

I can remember a dozen years ago, when the usual Chicken Littles clucked over a phony poll suggesting that boomers were more likely to believe there was life on other planets than that Social Security benefits would be there for them.

Well, surprise! In the August issue of his IRA Advisor, nationally known CPA Ed Slott features an article by his new associate, Marvin R. Rotenberg, titled “When Should Boomers Begin Collecting Social Security Benefits?”

Notice that question was “when,” not “if.” While the stock market has risen, the money hasn’t always been there when one needed it. And the market also has tanked at times – including the current spectacular instance – bubbles have burst, and several of the largest companies and banks have disappeared. While we can’t be sure about life on other planets, Social Security is secure, predictable and guaranteed.

As Rotenberg says, “For millions of baby boomers 2008 might just be the first year of the rest of their lives. As the first of the boomers reaches age 62, an estimated 3million will … qualify for Social Security this year.” But whether they should take the partial benefit or wait for the full benefit at age 66 is a complex issue, Rotenberg writes. “There is no clear answer.”

He notes that collecting benefits at age 62 reduces by 25 percent the benefits you would get at 66. But you could continue to work and invest your monthly benefits, although they would be reduced further, depending on your earnings. If you wait to collect at full retirement age, there is no reduction in benefits if you work, no matter how much you earn.

Because of such complications, as Rotenberg points out, the Social Security Administration Web site, social security.gov, includes online tools to find out your benefits and that of your spouse at various ages with a table on the best timing to take your benefits.

Everett Lo, in New York’s Social Security office, says the agency has published a new fact sheet on the issue at socialsecurity.gov/ pubs/10147.html.

With defined pension benefits disappearing and stock market-based savings plans unpredictable at the moment, Rotenberg says, “Social Security may become increasingly valuable due to its tax-favored status, inflation protection, survivor protection and … longevity protection.”

It’s worth remembering that in 1983 Ronald Reagan abandoned his earlier criticisms of Social Security and appointed a commission headed by Alan Greenspan, which pushed through Congress some serious fixes that helped build the current $2 trillion Social Security Trust Fund that will outlive virtually all the boomers.

Those changes included raising the retirement age to 67, bringing into the system all federal workers, including members of Congress, increasing payroll taxes and taxing a portion of the benefits, and gradually raising the cap on wages subject to payroll taxes.

According to the Congressional Budget Office, most of the boomers will be retired or gone when the Social Security Trust Fund runs out in 2049. The trustees say that will happen in 2041. But the problem, if it exists, is not as great as in 1983. The generation following the boomers is much smaller; the nation’s growth rate may exceed expectations and mitigate the financial problems; and no one knows what will happen in this world in the next 33 years. But even if the trust fund is exhausted, the system’s current revenues will be able to pay 74 percent of benefits.

The trustees this year estimated the shortfall over the next 75 years at 1.7 percent of payrolls; the CBO says it’s 1.06 percent. That’s easily covered by a 2-percent raise in payroll taxes split between workers and employers.

But in a new development, the American Academy of Actuaries, a professional group that normally avoids such specifics, issued a position statement last month advocating a gradual increase in the retirement age to reflect changes in longevity. The academy did not specify what the age for full benefits should be, but its Web site indicated that retirement age could be raised to 70.

I asked an academy official what would happen if workers in certain tough and physically demanding industries could not keep working until 70. They could retire and take partial benefits, I was told. Last year’s academy statement took no specific position and said raising the retirement age “is really a benefit reduction,” would be a burden on workers in strenuous jobs and would solve no more than two-thirds of Social Security’s financial shortfall.

Why the change this year when the problem is easily fixed? Langer noted that raising the retirement age in 1983 had meant deep cuts, about 25 percent, in the total benefits over a worker’s lifetime. Raising the retirement age beyond 67 would mean cutting thousands of dollars a year from workers’ benefits. Such cuts are unnecessary, said Langer.

In fact, the Academy’s Web site lists several possible alternatives to solve the system’s financial problems without cutting benefits or raising the retirement age, the most effective of which would be to raise or remove the current cap ($102,000) on wages subject to the payroll tax.

The academy’s site estimates this would solve 93 percent of Social Security’s problems.

One of my longtime readers, retired accountant Lewis Nadler of Floral Park, has done the math with the help of federal budget projections. He says simply eliminating the cap would increase Social Security’s revenue by $2 trillion by 2017, when it is to begin dipping into the trust fund to pay benefits. It’s one of several ideas we’ll explore further.

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