FEATURE
For Many Seniors, Social Security Means More Than Money
By Timothy Lavin
Josephine Disparti worked for many years as a nursing educator at several CUNY schools. She contributed her required share to Social Security and participated in the retirement investments her employers offered. She didn’t often think about her savings, though while working as a home-care nurse she often saw seniors living in poverty, subsisting on little food and inferior medical care.
“I never thought about not being able to work as long as I wanted to,” she told this writer. “I wanted to keep working into my 70s.” But recently and unexpectedly she developed back problems that have prohibited full-time work. And the stocks in which her employers had invested her retirement funds performed poorly. As a result, she now depends on a combination of what savings she’d accrued and—to an unexpected degree—the monthly Social Security check.
“I do rely on it a great deal,” she said. “I have some savings which I’m using to supplement it, but Social Security is allowing me to live not just to buy my groceries but other things. I can plan a trip. I can have some independence. I think that’s true of a lot of people—they can’t foresee that they won’t be able to earn the money they want in the future.”
Social Security has sustained or insured the elderly in this country for 70 years. In a few decades, though, as more Americans retire and fewer workers are around to support them, Social Security as we’ve known it will either require a lot more money or have to become a lot less generous. While neither option is pleasant, President Bush announced soon after being reelected that reforming the system would be a top priority in his second term. He has since traveled the country making the case. “The crisis,” he said at an economic conference in December, “is now.”
Many people dispute that statement. And the president’s proposed solution, which would in part involve allowing younger workers to shift some of their payroll taxes into private investment accounts, has evoked visceral opposition—both from congressional Democrats and even some members of his own party.
The president has also stirred up another formidable opposition: retired seniors like Ms. Disparti who have spent a lifetime providing Social Security its sustenance and now depend on its bounty. Ostensibly, these seniors comprise the one constituency without a stake in this fight; no politician would dare cut their benefits, and the president’s scheme likely won’t solidify in their lifetimes. Yet they’ve been some of privatization’s most ardent and vocal detractors. Many simply worry, understandably, about their grandchildren. Others harbor more complicated moral misgivings, honed by childhoods lived during the Great Depression, and many years of seeing America’s social-insurance programs evolve—and, by and large, succeed.
In a recent AARP poll, nearly 80 percent of Americans aged 60 and over expressed support for keeping Social Security as close to the present system as possible. Almost half said they strongly opposed the idea of private accounts. And when those favoring private accounts were confronted with the fact that future generations could be saddled with two bills—one to cover Social Security’s shortfalls and one to cover the creation of private accounts—less than half of those polled still supported the idea.
The AARP itself takes an unequivocal position. “Here’s where we begin and where our members begin,” says Ridge Multop, a senior legislative representative for the organization. “If you have a problem you shouldn’t make it worse before you solve it, and privatization makes the problem worse. Markets go up and markets go down, but I can count on Social Security. If you invest in the market, and you rely on that for an even greater share of your retirement income, you’re taking a much bigger risk with your economic security.”
With more than 35 million members, considerable funding and a dexterous political and publicity apparatus, the AARP makes a fearsome opponent. And though, as noted, very few of the people they currently represent – those Americans 50 and older – would be directly affected by changes to Social Security, the AARP has a clear stake in securing benefits for its future constituents. Individual seniors have their own way of putting it.
“People say, well, the seniors don’t have to be worried because they’re not gonna be hit,” said Helen Quirini, an activist from Schenectady. “That’s a lot of baloney.” For the past few months, Ms. Quirini has been mobilizing other seniors to take part in petition drives, energize community rallies, and badger politicians to resist any privatization scheme. “Number one, we care about the younger generation. I don’t have any children or grandchildren, but I care about the young people. Number two, I grew up in the Depression. In our generation we were frugal, we were careful. I care very deeply for my country and I expect some measure of responsibility from our government. So I’ve been raising hell about it.”
So have many of her peers. “We have never had such an outpouring of people,” said Michael Burgess, executive director of New York State Alliance for Retired Americans. He said his group’s recent meetings on Social Security have been packed. “It’s a fake crisis, and people are angry about it. You know, we really believe it’s been the most successful social program in American history, and for someone to come along and say that because there are some future problems we have to totally dismantle it [is ridiculous].”
No politician would claim to want to dismantle Social Security, even if that’s exactly what he or she does want. Still, future problems with the program are undeniable. Stripped of ideological varnish, the debate about how to deal with these problems is fairly straightforward. Money comes out of our paychecks for Social Security—employees pay a 6.2 percent tax on their income and employers match that amount. All of which funds the checks received by the elderly, their dependents, the children of deceased workers, and the disabled. This means that Social Security is a “pay as you go” system. The working generation finances the retired generation.
The whole process has generally avoided catastrophe. From the beginning, actuaries in the Social Security Administration anticipated demographic problems. They knew, even in the 1930s, that America would age; as a result, more and more people would be drawing benefits from Social Security, and fewer and fewer would be paying the taxes that would fund these benefits. To fill this breach, which inheres in any pay-as-you-go plan, Congress created a trust fund. Which meant increasing payroll taxes to build a surplus.
Here things grow a bit tricky. When Social Security taxes are collected, the money that does not go directly to pay benefits rolls into the Social Security trust fund—it’s loaned to the United States Treasury. Interpretations of what exactly this means differ. U.S. treasury bonds are considered the safest investment in the world. The United States has never defaulted on a loan. Indeed, each time in the past that Social Security operated at a deficit it has gone on to redeem bonds painlessly. Yet critics of the trust-fund formulation insist that the bonds are empty promises, buckets of worthless IOUs.
Because Social Security has loaned so much money to the government – the trust fund now holds about a trillion and a half dollars – it has tempted Congress year after year to spend beyond its means. And Congress has yielded to the temptation, year after year. No money, the fund’s enemies claim, has ever actually been saved. But the government is legally obliged to meet its commitment to the trust fund. If there’s not enough money for this commitment, that’s not a shortfall of the Social Security system; it’s a shortfall of the federal government. As Paul Krugman wrote recently in The Economists’ Voice, “Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?”
The last time Social Security faced a putative crisis was in the late 1970s, as the economy—and with it, the wages needed to fund benefits—stagnated. The trust fund appeared ready to evaporate. Congress met the problem by raising the retirement age gradually, while modestly increasing taxes and reducing benefits.
Today’s situation is not so dire, and similarly simple solutions exist. By 2018, the Social Security Administration will begin paying out more in benefits than it receives in taxes. Though the trust fund will sustain benefits for several decades beyond that, without some reforms the fund would eventually be exhausted. Promisingly, President Bush, in his State of the Union address in February, said: “I will listen to anyone who has a good idea to offer.”
There are many good ideas. But the president has made it clear that any reform must, in his scheme of things, give workers the option to divert a portion of their taxes—perhaps one-third—into conservatively invested private accounts to be administered by the government.
One thing should be clear about these accounts: On their own, they will not improve Social Security’s long-term solvency, as the Bush administration now admits.
Private accounts or no, there are only two ways to rescue Social Security from eventually sliding into arrears: The government will have to find more money, or pay less to future generations of seniors. One simple solution would be to raise payroll taxes. A 2 percent rise in this tax—1 percent paid by employer, 1 percent paid by employee—would sustain the current level of benefits until at least 2078, according to Social Security trustees. What stops this in its tracks is that the president has already ruled out tax hikes, reasoning that higher taxes tend to slow economic growth.
Another option is to increase the amount of income subject to the Social Security tax, which right now is oddly capped at $90,000. Any income that fortunate Americans rake in above that amount is exempt. The AARP favors such reform, as do many in Congress. Because it would increase the pool of taxable wages this is, of course, a tax increase opposed on sight by conservative Republicans. “It hits relatively few people,” said Rea Hederman, a senior policy analyst at the Heritage Foundation. “But for them that’s a huge, massive tax increase, which would have all sorts of pretty bad economic effects.”
To combine this aversion to taxes with the individual-accounts idea is to flirt with disaster. The “transition costs” of funding retirees at current benefit levels while younger workers divert more of their paychecks into stocks will amount to something utterly astronomical. Exact figures are debatable, but it exceeds a trillion dollars. Without a tax increase this money would have to be borrowed – and eventually paid back somehow.
Almost assuredly, then, private accounts would need to be funded by steep cuts in benefits. The president indicated, in an April press conference, that he plans to apply an actuarial technique that his staff called “progressive indexing.” Right now the rate at which benefits rise is based on national wages. Under progressive indexing, the benefits of the poorest workers would continue to rise in this manner while the benefits of wealthier workers would rise with inflation, which increases more gradually. Those in between would be afforded some prudent mix of the two. When viewed honestly, this is still a benefits cut: The benefits of wealthy and middle-class workers must rise a lot less quickly; that is, they’d get quite a bit less in benefits than initially promised.
In addition to these reductions, those workers who opt to invest part of their checks in the private accounts will also get less from Social Security—even if they strike out on the markets. For some, losing that money could be devastating. About two-thirds of Americans over 65 get more than half their income from Social Security, and about 20 percent depend on it entirely. “This is really going to hurt low-wage workers,” said Steven A. Sass, associate director for research at the Boston College Center for Retirement Research. “High-income people have investments and houses, and if you reduce their benefit by 20 or 30 percent, then it’s an annoyance. If you do that for a low-wage worker, it’s a crisis.”
Lou Glasse, the former director of the New York State Office for the Aging, agreed. While heading that office, she said, “I began to recognize that the people who came to our nutrition programs, the people who were in trouble and needed health-care assistance, who were living on a very marginal income—they needed more and more help as they got older. And what I discovered then, what I knew but really hadn’t thought about, was that neither the state nor the churches nor any private charities can really substitute for Social Security.”
Cutting the benefits of old people is an unhappy prospect. And subjecting a higher proportion of the benefits they’d still receive to the vacillation of the stock market, even if voluntary, is still something with which most Americans are uneasy, as a recent AP poll found. So why do it now, especially if it’s not directly related to resolving Social Security’s potential shortcomings?
“It’s a mystery to me,” says Robert M. Ball, a former commissioner of Social Security for presidents Kennedy, Johnson, and Nixon. “We considered many options over the years to add to savings on top of Social Security, but never in the sense of replacing any part of it.”
Mr. Ball recently proposed a two-part plan that he calls “Social Security Plus.” It involves eliminating the system’s long-term deficit through a series of technical reforms—what he calls “maintenance work”—and then allowing workers to invest in supplemental private accounts administered by Social Security. These private accounts would enable seniors to diversify their savings and have a greater stake in the markets, but they would not replace guaranteed benefits; they would be in addition to them.
Many other smart people have proposed many other solutions to Social Security’s potential problems. And many people (including many seniors, according to various polls) would be amenable to private accounts that did not substantially reduce guaranteed benefits. To sort through these proposals will take time. But any discussion must be clear on what exactly Social Security is, and what it has meant to the generations that have paid for it and now benefit from it.
“Seniors realize what young people don’t realize: When you put all your eggs in one basket, that basket can be emptied in the worst circumstances,” said Genevieve Cervera, a senior from Manhattan who works with a group called Citizen Action. “We realize we have nothing to lose. But this is about taking away one of the fundamental rights a society can provide. We want to leave behind what was given to us.”
A compelling argument, articulated by the Bush administration and many others, is that private accounts will help people save more of their own money—money they can live off and pass on to their children. Roger Lowenstein wrote in The New York Times Magazine recently that the Bush administration’s approach would be “one that would set aside the notion of collective insurance and guaranteed minimums for that of personal investing and responsibility.”
That’s really the crux. Responsibility is something for which governments and citizens should always strive. And investments are a good idea for those saving for retirement. But as most seniors know, life presents problems and occasionally catastrophes that have nothing to do with responsibility—problems only the government, with its vast resources and ability to pool risks, can adequately address. For the past 70 years we’ve accepted that Social Security is not simply a retirement benefit; it’s a social-insurance policy for which every American bears responsibility.
More than any other definable group, today’s seniors can attest to the importance of this responsibility. “We have long memories,” says Lou Glasse. “We remember all the unemployed and the homeless and the destitute when there wasn’t enough money after the crash in ’29. And they know—older people know—there can always be another crash.”
