I find it remarkable that Social Security is not the front and center issue in the midterm elections. Key Republicans say they will cut Social Security and Medicare if their party gains power. Some Republicans are considering raising the full retirement age to age 70.
Limiting Social Security when retirement income security is so fragile seems as if it would be a singularly unpopular position, but it is hardly discussed in the nations’ campaigns. Instead, criticisms of a short Presidential tweet about Social Security COLA increases makes the news.
President Ronald Reagan and Republicans led the way, in 1982, to cut Social Security benefits by raising the full retirement age to age 67, which is just a way to say Congress changed the formula so benefits would be 10-15 percent smaller at every claim age. Changing the formula to make age 70 the so-called full retirement age, as some Republicans want to do will further cut monthly benefits.
How low is still too high for the Republicans?
Social Security has been slashed before our eyes for decades and voters have not noticed. They should.
The Social Security system was implemented 87 years ago despite majority Republican opposition to the plan. Social Security was never designed to replace 100 percent of preretirement income, but it replaced a lot. But over the decades, since 1982, Social Security replacement rates fell dramatically. Mark Miller, in his Retirement Revised blog, describes the Center for Retirement Research’s findings that average earners retiring at age 65 would have received 41 percent of their preretirement earnings from Social Security in 1995, after considering taxes and Medicare Part B premiums, but would replace only 29 percent of their income in 2035. The Social Security replacement rate will have fallen from 41% to 29% in 30 years.
Not enough wealth to make up for Social Security losses
And the vast majority of workers do not have enough to fill the gap. Growth in other sources of income from private wealth and retirement accounts isn’t large enough to make up for Social Security losses. Average retirement balances are about $70,000, the average person needs about $700,000.
The AON Consulting Group metric shows at each age how much final salary you need in retirement accounts to be on track to replace about 70% of pre-retirement income. In their calculations, by age 67, the average full-time worker needs 11 times their average pay to supplement Social Security to maintain their preretirement standard of living in retirement. It is easy to know if you are on track. When you are 67 will you have 11 times your pay in a retirement fund? A vast majority won’t.
The National Retirement Risk Index from the Center for Retirement System calculates in 2021 the grim proof that roughly half of households are at risk of not maintaining preretirement standards even if households work to age 65 and annuitize all their financial assets, including reverse mortgaging their homes.
Universal retirement plans and better Social Security
Social Security is not enough to live on so we must make efficient and fair savings vehicles accessible to all workers, not just those who are lucky enough to work at jobs offering retirement benefits. Universal pensions would address this issue.
One idea is Economic Innovation’s Group inclusive wealth builder plan, which includes an almost universal pension program modeled after the federal government’s Thrift Savings Plan (TSP). It would involve automatized tax-deferred contributions to be withheld from workers’ paycheck. The government would then match that contribution up to 5 percent of workers’ annual salary. By default, those contributions go into a very low-expense mutual fund appropriate for the age of the employee.
Congress also needs to add more revenue to the system so Social Security can pay full benefits by 2035. If Congress does not act beneficiaries may face projected benefit cuts of 20%. But the Republicans are telling voters they will cut and privatize the program. Nancy Altman, member of the technical Social Security Advisory Council, has been warning about backroom conversations among Republicans to trim Social Security if they have political power.
Voters need to think harder about Social Security losses if Republicans win
Ironically, in spite of its popularity — 8.3% of Democrats, 73% of independents, and 73% of Republicans want to strengthen Social Security and pay for it by making the wealthy contribute their fair share — Social Security is still whim to changes in political party where some leaders want to cut it.