There may be no more controversial issue for both Baby Boomers and their parents than Social Security. After AARP officials said last week the organization would be open to discussing changes in the system, I wrote the following for my TaxVox blog:
Social Security has two obvious problems. While the system is not “broke,” as some insist, it will have only enough money to provide future retirees with about three-quarters of their promised benefits. At the same time, it is poorly designed for the needs of a country where life expectancy and the nature of work and family have changed dramatically since Social Security was created in 1935.
As a result, those who most need social insurance—single women, low-wage workers, the disabled, and the very old—get much less than they need. On the other hand, those who need benefits least get the most.
If Washington policymakers could hold the twin goals of solvency and modernization in their heads at the same time, they could take a few relatively modest steps needed to reform Social Security—and enhance a key pillar of the social safety net for the most vulnerable elderly.
The trick will be to get past the dissonant squabbling that passes for debate these days. Conservatives need to recognize that Social Security will remain a defined benefit program for the foreseeable future. Liberals must overcome their fear that any change at all is the death knell for social insurance.
While Social Security played a key part in reducing poverty rates among the elderly from more than one-third to less than 10 percent over the past half-century, the system is increasingly leaving some seniors behind. Just a few examples: Divorced and never-married women are three times more likely to be poor in old age than married women, and more than one-third of retired workers and widows get benefits that fall below the poverty level.
In this environment, AARP deserves tremendous credit for declaring its willingness last week to sit down and work out a Social Security deal. By doing so, it recognizes two essential realities: the seven decade old Social Security system needs to change, and it will.
But how can lawmakers and advocacy groups build a consensus with the dual aims of securing long-term solvency and modernizing the system? I think they can by agreeing to a six common-sense principles:
- Create a respectable minimum benefit for low-income workers, increase some widows’ benefits, and create an additional benefit for the very old (say, 85 or older).
- Raise the retirement age, including the minimum benefit age of 62. An extra year of work would solve about one-third of the program’s funding problems. More and more of us can work into our 70s and a modern Social Security system should reflect that. It makes no sense for government to signal that we should stop working at 62 when we are likely to live for two more decades.
- Protect those who work physicially demanding jobs. While the percentage of older Americans who do manual labor is shrinking, those who do this work need to be protected. Long overdue reforms in Social Security’s badly broken disability system would help.
- Increase contributions and reduce benefits for high-earners. Everybody would still get some benefit—Social Security is not welfare and must retain its status as social insurance. But there is no reason why it can’t be made more progressive.
- Preserve the defined benefit nature of Social Security. Adding an additional savings component is a good idea. But the public is not interested in taking on additional risk with their retirement.
- Be absolutely transparent about benefits and structural changes. Whatever Congress does, there should be no surprises. As it is, many young people have no confidence in Social Security. Reforms should restore their faith in this key piece of the old-age safety net. But government should also be clear that in the future Social Security will only supplement—and not replace– other retirement savings for middle- and upper-income retirees.
By following these principles, Congress and President Obama could fix Social Security in a way that makes it both solvent and relevant to a 21st century world.