Is Social Security really in bad shape?
One of my first articles for The Motley Fool, way back in 1999, was anti-Social Security. Since then, I've somewhat moderated my view. It basically comes down to this: I'd be better off if I didn't have to pay the tax and could invest it as I see fit, but that's probably not the case for most other Americans. I've been saving for retirement since my early 20s, and -- as a Certified Financial Planner -- I should know a thing or two about investing. However, I've seen enough to know that most people save too little, too late, and not well.
You might be saying, "If people don't save, then it's their own darn fault, and they should suffer the consequences -- which is working longer, not the worst thing in the world." I actually have a good deal of sympathy with that argument. I suppose the counterpoint could be that if older people work longer, there will be fewer jobs for younger people entering the workforce.
Anyway, whether you think Social Security is a good idea or not, there's still the issue of it being unsustainable. People will often refer to it as "bankrupt." But how bad off is the program?
Douglas Elmendorf, the director of the Congressional Budget Office, posted a link on his blog to the CBO's recent Social Security analysis. According to their number-crunching, it would only take raising the payroll tax, currently 12.4%, to 13.7% in order to make the program sustainable. Sure, no one wants higher taxes. But that doesn't seem catastrophic.
Bruce Webb over at the Angry Bear blog described the results of the CBO report this way:
"Per this report Social Security will be able to pay out 'scheduled benefits' until Trust Fund exhaustion in 2043 and thereafter will be able to pay out 'payable benefits' at a rate starting at 83% of scheduled benefits and then gradually sinking to 78% by 2083. Even after adjusting for inflation benefits after 2043 will be better than retirees get today in real terms even though they will be a smaller replacement percentage. That is our children's retirement will be materially better than that of their grandparents if not quite keeping up with the working life gains of their own grandchildren."
That doesn't sound too bad to me. It certainly doesn't look like Social Security is "bankrupt."
But wait! What about the trust funds, which have nothing in them but IOUs from Uncle Sam? Where will he get the money to turn them into Social Security benefits checks in several years?
Well, maybe the program isn't as not-as-bad-off as it sounds.
For what it's worth, I would start fixing the program by raising the eligibility age before raising taxes. From then on, it would be indexed to life expectancy.