Can those aged 45 to 64 be saved from misery in retirement? How?
How could Social Security be enhanced to meet the needs of those nearing retirement?
If, as Morrissey says, “Social Security is the cheapest and most efficient retirement program there is,” how could it be improved to provide real security to future retirees?
Different methods to Enhance social security
Across-the-board, targeted, and partially targeted approaches.
According to Eric Kingson, “There are some very simple things that could be done that are not outrageously expensive. One, the CPI could be adjusted” in a manner to help, not hurt, beneficiaries. He suggested starting with a measure called CPI-E, an index that aims to more accurately assess the cost of living for the elderly by more heavily weighting health care and housing costs. “If they had that going back to 1982, benefit adjustments would have been about one-fifth of 1 percent higher each year than they have been.”
The effect of adopting the CPI-E measure, according to a document produced by the U.S. Senate Committee on Health, Education, Labor, and Pensions, would be to “ensure that Social Security benefits keep pace with the rising costs of essential items for seniors, including health care.” Such an approach would therefore help prevent the retirement security crisis from being exacerbated, but would not alone generate the increased benefits necessary to solve it.
To do that with Social Security would require a broader expansion. There are three general ways in which Social Security could be expanded: there could be a targeted or means-tested benefit increase, benefits could be increased across-the-board, or the benefit formula could be adjusted in such a way as to increase benefits for all, while providing low-income households with a greater proportional share of the boost.
Paying for the future
Despite the common refrain that “we just don’t have the money,” there are many options for how to finance such expansions or restructurings. The New America Foundation suggested funding its plan with a Value-Added Tax (VAT) of the type seen in much of Europe, China, and elsewhere. Eric Kingson suggested a dedicated financial transaction tax that would flow into social security, much like the so-called “Robin Hood Tax” that has recently been approved by the European Union. (Remapping Debate previously wrote about the financial transaction tax.)
Some economists are also in favor of lifting or modifying the payroll tax cap, which currently exempts earnings above $113,700 from Social Security taxation. (This idea, though nationally popular, seems to frighten many Senate Democrats.) Ghilarducci would like to see the cap immediately and completely lifted for employers (not employees).
This alone, she said, would “solve elderly poverty,” as long as benefits don’t also increase for higher-income workers. “It would keep the system going, and it could bring up everybody’s income who’s on Social Security up to the poverty level.” She added the caveat, however, that “the reason why that can work is because the poverty level is really low,” and people with incomes between the poverty level and 200 percent would remain in a state of want. Getting all retirees up to 200 percent of the poverty line, she said, would require raising the tax rate as well as broadening the base.
Other models of modifying the payroll tax cap include lifting it for both employers and employees, but increasing benefits for those who will be paying more. Monique Morrissey endorsed this idea, and added, “You can have a lower multiplier” for those new benefits, but the link between contributions and benefits should be preserved, because “that’s what makes people believe in [Social Security].” This approach would, however, produce less revenue.
Choices to be made
Though future retirees appear to be ill-prepared for their post-employment years, the United States has a number of ways to mitigate this problem — if it is willing to pay for them. “We have a choice,” said Virginia Reno. “We have a choice in all of our public policy issues, whether to pay for what we want or to declare we can’t afford what we want.”
How much would a solution cost?
Surprisingly, only one of several experts spoken with was even able to offer a rough estimate.
While some say seniors will simply have to work longer into their old age, and some even blame those seniors for failing to appropriately save during their working years, Monique Morrissey believes there is a broader philosophical issue at stake: “There’s absolutely no reason for a wealthy country like the United States not to have adequate retirement policies that allow people to retire before they’re sick and worn out.”
Teresa Ghilarducci added that for many, even if more jobs were available, working longer simply isn’t an option. “We already have a situation where most people want to work longer but can’t,” she said. Some of this is due to loss of work, some due to physical or mental limitations resulting from ill health, and some because of the need to provide care for a spouse. For such people, even increased work opportunities will not help.
To Eric Kingson, “It’s really a fully disrespectful notion: that somehow these folks are going to just have to suck it up. Well, they have sucked it up. They’ve already experienced recession, loss of pension protections, less security.”
Refusing to engage in a discussion about the public policies that could help future retirees, Kingson said, is itself making a choice. “It’s bounding the policy discussion, and framing it, and feeding into fatalism…There are lots of things we could do. We just need to have the political will to do it.”
Additional reporting by Heather Rogers.
Note: this article has been modified on May 8, 2013, to more precisely reflect a statement from Anthony Webb of the Center for Retirement Research (Page 1 of article).