My (new!) colleague Bob Greenstein handily summarizes the key info from the new Social Security Trustees Report. These things don’t change a ton from year to year—there’s a shortfall out there in a few decades and the fixes for it are known—which is not to say they’re easy. They involve higher payments into the program from current workers, some form of diminished benefits, or some combination. The CBO link above (see Tables 2-4 if you’re up for a good, old-fashioned data slog) shows the different ways to close the gap.
But I wanted to make a different point, one that too often gets lost amidst all the high anxiety around entitlement costs. Some people in this debate think Social Security isn’t that important to the people who get it. After all, average benefits are only about $14,000 per year, and sure, it helped a lot of retirees in the old days, but nowadays everybody’s got savings and pensions, right?
If you think of retirement as a three-legged stool (savings, pensions, Soc Sec) the latter is the strongest leg. Retirement savings have been lagging for years for many in the workforce due to stagnant wage growth, and pensions have a) shifted from guaranteed (defined benefit) to variable (defined contribution) and b) gotten whacked by bursting asset bubbles. Social Security is that holy grail of retirement security: a guaranteed pension.
And, as the figure below shows, for recipients age 65 and up on, Social Security is about two-thirds of their income and that share grows with age—for the old-elderly, it’s closer to 70% of their income. Other data show that for a third of those over 65, Social Security accounts for at least 90% of their income.
We should keep these income shares in mind when we think about applying some combination of the fixes to the shortfall. Benefits mean a lot to most retirees and that fact should guide our solution set.