Cutting Social Security will not fix the national debt
After President Obama's debt commission, Social Security is becoming a popular target for fiscal hawks. But Social Security will never add a dime to the debt, and Washington ought to be paying more attention to an actual crisis: the retirement income deficit.
Washington is panicking over the national debt. Powerful members of Congress, spurred on by recommendations made by some members of President Obama’s recently concluded fiscal commission, are planning an aggressive legislative agenda to balance the books. Part of this strategy is attacking Social Security.Skip to next paragraph
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Workers and retirees alike should be alarmed.
Correcting the myths
Focusing on Social Security cuts is misguided on two counts. First, it wrongly assumes that Social Security is going broke and causing a long-term fiscal crisis. Second, it ignores a much more urgent financial crisis in our midst: the retirement income deficit – representing the gap between what people have saved for retirement today and what they would need to have saved by today to meet a basic threshold of adequacy in retirement.
If the new Congress is serious about both protecting economic security for older Americans and getting the economy back on track, the last thing we should do is cut Social Security. We should strengthen it, and work to create a new reliable private retirement income system on top of it.
Contrary to the widespread myth further forwarded by the commission, Social Security is neither going broke nor causing our federal deficits. It never contributed and, unless the law is changed, never will contribute a penny to the debt. It is self-financing, has no borrowing authority, and cannot pay benefits unless it has the income on hand to cover the entire cost.
Today, Social Security is running surpluses and will be in sound financial shape for nearly three decades. Even after that, its long-term shortfall can be addressed easily without cuts. If a corporation could make such claims to its shareholders, it would be cause for champagne, not gloom and doom.
The retirement income deficit
What is a source for gloom is the massive retirement income deficit already facing millions of Americans. Calculated by the Center on Retirement Research at Boston College, the Retirement Income Deficit is already $6.6 trillion – five times the size of the federal deficit.
The retirement income deficit covers households in their peak earning and saving years — those in the 32-64 age range. It assumes that people will continue to work, save, and accumulate additional pension, retirement savings, and Social Security benefits until they retire at age 65, later than most people currently retire. It also assumes that retirees will spend down all their wealth in retirement, including home equity. The $6.6 trillion is thus in many respects a conservative number.
Cuts to Social Security will only make the retirement income deficit worse. Social Security was intended to provide only a minimal foundation of retirement income, with private sources making up the rest. Our current problem is that in practice, Social Security is the lion’s share of retirement for most Americans: it’s half the income for two out of three retirees and virtually all the income for one out of five.