One Man Thinks That The Third Rail No Longer Exists

     John Tammy has written a piece for Forbes arguing that Social Security is no longer the Third Rail of American politics because people will be working until they're 70 and then relying upon their private savings. Social Security hardly matter to anyone not already on benefits or about to be on them. He just wants taxes lowered for money coming out of retirement accounts.

    Talk about being elite and out of touch! Most people don't wait until full retirement age now to start their Social Security benefits. There's no sign that's changing. Blue collar workers can rarely go on working until they're 70. Their health won't permit it. I think that Mr. Tammy hasn't yet experienced any of the ill effects of the aging process. It's coming for you too, buddy, whether you believe it or not. The odds are high that even highly motivated white collar workers don't make it until 70. Private savings? Does Mr. Tammy know anyone with an annual income below $100,000? Apart from their homes, if they're lucky enough to have them, most Americans near retirement age have only modest savings at best.  

    Right wing "thinkers" keep telling us that the key to all retirement problems in the U.S. is lowering the tax bills paid by wealthy Americans. It's what they're paid to write.

It's An Idea

    From The Case For Using Subsidies For Retirement Plans To Fix Social Security by Andrew Biggs and Alicia Munnell:

The U.S. Treasury estimates that the tax preference for employer-sponsored retirement plans and IRAs reduced federal income taxes by about $185-$189 billion in 2020, equal to about 0.9 percent of gross domestic product.1 However, the best evidence suggests that the federal tax preferences do little to increase retirement saving.  ...

The [report] concludes that it makes little sense to throw more and more taxpayer money at employer plans and IRAs. In fact, the case is strong for eliminating the current tax expenditures on retirement plans, and using the increase in tax revenues to address Social Security’s long-term financing shortfall. ...

    This doesn't appeal to me. It's very unlikely to pass. There aren't specific tax revenues involved, just a reduction in tax preferences. I'd be more in favor of dedicating revenues from the estate tax, excise taxes and tariffs to Social Security but I doubt that would be enough to matter much. It's becoming more and more obvious to me that the only solution to the long term funding shortfall is an infusion of general tax revenues. The things that people discuss, raising full retirement age and lifting the cap on wages covered by the FICA tax, even together, aren't nearly enough to solve the long term funding problem.

The Attacks On Social Security Never Stop

     Michael Hiltzik of the Los Angeles Times has quite the takedown of a ridiculous piece on Slate by Eric Boehm and Celeste Headlee titled “Social Security Doesn’t Make Sense Anymore.” Hiltzik describes the Slate piece as full of "misconceptions, inaccuracies, misrepresentations, and flat-out lies about" Social Security.

Every Bad Idea For Social Security That The GOP Has Ever Had, In One Document

    Republicans in the House of Representatives have put forth their plan for what that they hope to extort from the President by threatening to put the U.S. government into default on its debts. Here's what their plan would do to Social Security retirement benefits (begins at page 80):

• Implement a new minimum benefit of 15% of the average wage index;
• "Modernize" the Social Security benefit formula, which is a euphemism for reducing future benefits for those now 54 and younger;
• Increase Full Retirement Age to 70 between now and 2040;
• Eliminate the retirement earnings test for those who are under Full Retirement Age;
• Eliminate auxiliary benefits for high wage earners.
  

    The plan also includes changes in disability benefits (begins at page 74):

• Enact a benefits offset experiment that would reduce disability benefits by $1 for every $2 earned (they must not know that this experiment is underway already);
• Allow FICA reductions for employers with high rates of employee retention, which is supposed to help handicapped people stay employed (which would disadvantage manufacturers);
• Require employment in six of the last ten years, instead of five;
• Time limited disability benefits for some recipients; 
• "Update" the grid regulations;
• Make disability benefits contingent on medical improvement (I don't think they meant to say that but that's what they said);
• Prevent those drawing unemployment benefits from drawing disability benefits;
• Eliminate withholding of attorney fees for representing claimants (at least I think that's what they're saying but they only thing clear about it is that they bear a lot of ill will towards attorneys);
• Close the record "after a reasonable period of time";
• Require Social Security to conduct periodic reviews of ALJ decisions, particularly those of "outlier" judges;
• Prohibit reapplications within 12 months of a denial;
• Increase the waiting period for Medicare from 24 months to 60 months;
• Eliminate the ability to apply for both early retirement and disability benefits at the same time;
• Allow employers and employees a reduced FICA rate if the employer provides long term disability benefits.

A "Bipartisan" Plan?

     From Semafor:

A bipartisan group led by Sens. Angus King, I-Maine, and Bill Cassidy, R-La. is considering gradually raising the retirement age to about 70 as part of their legislation to overhaul Social Security, Semafor has learned from two people briefed on their efforts.

Other options on the table include changing the existing formula that calculates monthly benefits from one based on a worker’s average earnings over 35 years to a different formula that’s based instead on the number of years spent working and paying into Social Security.

The plan also includes a proposed sovereign wealth fund (as previously reported by Semafor) that could be seeded with $1.5 trillion or more in borrowed money to jumpstart stock investments, the people said. If it fails to generate an 8% return, both the maximum taxable income and the payroll tax rate would be increased to ensure Social Security stays on track to be solvent another 75 years. ...

Sen. Mike Rounds, R-S.D., a member of the group, previously said that raising the payroll tax cap was under discussion. Only the first $160,000 of employees' earnings are currently subject to payroll taxes, which help fund Social Security. If Congress fails to step in, retirement benefits will be cut roughly 20% for seniors starting in 2032, per the Congressional Budget Office.

    Are there any real Democrats on this "bipartisan" group? I know that Angus King caucuses with Democrats but he's not a Democrat. 

    None of this has any hope of passage in this Congress.

 

Don't Panic!

     Paul Krugman has an excellent piece in the New York Times about why we should not panic about Social Security. You really should read the whole thing. Here are a few excerpts:

...  The thing about Social Security is that from the beginning it was designed to encourage misconceptions. It looks, on casual inspection, like a giant version of a private pension plan. ...

I’m pretty sure that it was set up to look like an ordinary pension fund because that made it politically easier to sell. But in reality, Social Security has never been run like a private pension plan. ...

For one thing, for the first half-century of the program’s existence it had almost no assets; in 1985, the trust fund was only large enough to pay around two months’ worth of benefits. So it has always operated mainly on a pay-as-you-go basis, with today’s payroll taxes paying for today’s retiree benefits, not tomorrow’s.

I often get mail from people claiming that this makes Social Security a Ponzi scheme. But it isn’t. It’s just a government program supported by a dedicated tax ...

I get a lot of mail from people saying that we should simply eliminate the upper limit on the payroll tax. That would certainly raise a lot of money. But bear in mind that there’s no fundamental reason Social Security has to be financed with payroll taxes — we only do it that way because back in 1935, F.D.R.’s advisers thought it would be a good idea to dress Social Security up to look like a private pension fund. ...

The other idea I hear a lot is that we should raise the retirement age — which has already been increased, from 65 to 67. After all, people are living longer, so they can work longer, right?

Well, some people are living longer. But one key point in thinking about Social Security is that the number of years you can expect to spend collecting benefits has become increasingly linked to the income you earned earlier in your life. ...

[C]alling for an increase in the retirement age is, in effect, saying that janitors can’t be allowed to retire because lawyers are living longer. Not a very nice position to take. ...

 

Full Retirement Age Went Up But Life Expectancy Went Down

     From People's Policy Project:

In 1983, Ronald Reagan signed into law a cut to Social Security benefits. Under the law, the Social Security full retirement age gradually increased from from 65 in 2000 to 67 at the end of 2022. ...

In the lead up to the passage of the legislation, a popular argument for raising the retirement age was that life expectancy had increased, so people should work for longer. The presumption was that the increase in life expectancy since Social Security’s implementation would continue as the retirement age rose. But, in reality, something peculiar happened.

Over the same period during which the 1983 law forced the retirement age up from 65 to 67, life expectancy in the US actually declined. In 2000, US life expectancy was 76.8 years. According to data released last December, life expectancy in 2021 was 76.4 years. This was the second consecutive year of significant life expectancy decline. ...

Have The Courage Of Your Convictions, GOP

      From Joseph Chamie writing for The Hill:

Despite an expected backlash, vocal objections and possible threats, it’s time to raise America’s Social Security retirement age to 70 years with no early retirement option.

There are important reasons for America to raise Social Security’s retirement age to 70 and do away with early retirement with reduced benefits, which about half of the recipients are currently choosing before reaching full retirement age.

The first has to do with the fact that Social Security is  projected to be insolvent by 2035. In its 2022 annual report, the Social Security Board of Trustees concluded that if no changes are made, the program will not be able to meet its financial responsibilities by 2035.

A second reason for raising the retirement age to 70 centers on the increasing life expectancies of Americans that have occurred over the recent past. …

     I think that once they get control of the House of Representatives next year the Republicans should bring this proposal to a vote. 

401(k)'s Aren’t Cutting It; We Need More Social Security

     From Helaine Olen writing for the Washington Post:

There are two schools of thought when it comes to how well Americans will fare in retirement. One says we are on the verge of a crisis, that the age of the 401(k) has left large numbers of us without sufficient money for our old age. A second group is more sanguine. They point out Americans spend less in retirement than when they worked, and claim the others are overreacting.

It’s increasingly looking like the chicken littles have it right. ...

The latest warning comes in the form of a research brief for the Center for Retirement Research at Boston College ...

[S]omeone born in 1945 has a better than half chance of living in a household where at least one person receives a pension. The number drops to about 25 percent for someone born a mere eight years later. By 2020, according to the Bureau of Labor Statistics, only 1 in 7 private-sector workers worked at a firm with access to a defined benefit plan. ...

[M]ost Americans are not putting enough of their own money away, and what they do save is often less than ideally invested. ...

So what’s the most likely fix coming out of Washington? Double down.

The Secure Act 2.0 passed the House this year in a bipartisan vote, with barely a whisper of dissent. It increases the amount of money people over age 62 can set aside in tax-advantaged retirement accounts, and ups the age at which they need to begin taking mandatory distributions from 72 to 75 — two things that will generally benefit only the wealthiest seniors. ...

It would be more helpful to buttress the Social Security Trust Fund and increase benefits, but there’s little action on that front. ...

If Full Retirement Age Is Based Upon Life Expectancy, Shouldn’t It Go Down Now?

 

     

     To be clear, I think full retirement age should be considered a proxy for the physical infirmities that go along with increasing age rather than life expectancy. We should not be forcing older people to be filing disability claims when their health problems are just to be expected at their age. However, there are others, particularly on the right, who think that full retirement age and life expectancy should be linked, although I think that this stance has had more to do with hostility to the general concept of social security than anything else. Increasing life expectancy gave them an argument to do something they wanted to do anyway -- cut Social Security benefits.

Social Security And Household Wealth

      A tweet from the Center for Retirement Research at Boston College:

Today is #EndPovertyDay. Without #SocialSecurity, a typical white household has 5 to 7 times the wealth of a minority household, but adding in Social Security reduces the gap to 2 to 3. Learn more: bit.ly/36aJ6EV #EndPoverty #PovertyEradication #RDRCResearch

Raising Full Retirement Age Is A Bad Idea

     From Are Older Workers Capable Of Working Longer by Laura D. Quinby and Gal Wettstein, published by the Center for Retirement Research at Boston College:

Disability-free life expectancy had been rising continuously in the United States until 2010, suggesting working longer as a solution for those financially unprepared for retirement. However, recent developments suggest improvements in working life expectancy have stalled, especially for minorities and those with less education. This paper uses data from the National Vital Statistics System, the American Community Survey, and the National Health Interview Survey to assess how recent trends in institutionalization, physical impediments to work, and mortality have affected working life expectancy for men and women age 50, by race and education.

The paper found that:

• The capacity to work to older ages is still increasing for high-education individuals and low-education Black women.
• However, no progress has been observed for low-education whites of all genders and Black men.
• As a result, large shares of those still working at age 62 will be incapable of working even two more years.

The policy implications of the findings are:

• Raising Social Security eligibility ages may reduce the financial security of large segments of the population.
• These impacts will be particularly pronounced for Black men and low-education white individuals of all genders. ...

People Don't Want To Wait Until Age 70

      From Think Advisor:

Getting the largest possible Social Security check doesn’t appear to be incentive enough for 90% of non-retirees 45 and older to wait until age 70 to claim them, according to a new study from Schroders Investment Management. Indeed, 30% plan to begin taking benefits between age 62 and 65, before full retirement age. Fourteen percent plan on taking benefits between 66 and 69, while nearly half 46% aren’t sure when they will claim. 

Even those who are at or near retirement age — ages 60 to 67 — don’t seem interested in waiting until age 70: Only 13% said they plan to wait to age 70 to claim Social Security benefits while 28% are still unsure.

 Only 5% say they waited until age 70 to claim the benefits.

     If you follow Social Security affairs, you frequently notice statements made by supposed "experts” based upon the premise that people would wait until age 70 to start drawing Social Security retirement benefits if they only knew just how much more they'd receive if they waited. That's nuts. People already know in general terms how things work. They just don't want to wait. Accept the reality. Even those who now promote waiting to age 70 will themselves probably start drawing retirement benefits well before age 70 because their opinions will change as they get closer to retirement.

Full Retirement Age Is Already Too Damned High

     From Are Older Workers Capable Of Working Longer?, a study by Laura D. Quinley and Gal Wettstein of the Center for Retirement Research at Boston College:

The paper found that:

• The capacity to work to older ages is still increasing for high-education individuals and low-education Black women.
• However, no progress has been observed for low-education whites of all genders and Black men.
• As a result, large shares of those still working at age 62 will be incapable of working even two more years. 

The policy implications of the findings are:

• Raising Social Security eligibility ages may reduce the financial security of large segments of the population.
• These impacts will be particularly pronounced for Black men and low-education white individuals of all genders. 

People Just Won't Behave Like Jason Fichnter Wants Them To

      Jason Fichtner is a mainstream Republican economist specializing in retirement issues. He worked at Social Security during the George W. Bush Administration. He's been associated with the Mercatus Center, a Koch brothers financed think tank. He's recently put out a "White Paper" on Creating A New Retirement Security Framework.  Fichtner identifies real problems. Traditional defined benefit retirement plans are going, going, gone. People aren't saving much for retirement. The money they do save isn't generating much safe retirement income because interest rates are so low. Annuities would help some but people are suspicious of them. Delaying going on Social Security would help but most folks don't wait until full retirement age much less until age 70. Social Security has long term financing problems. What are Fichtner's solutions: Try harder to persuade people to delay going on Social Security retirement benefits and try harder to persuade people to use annuities for retirement income.

     I think that Fichtner's solution to the problems he identifies are completely inadequate. In fact, I'd call them almost useless. We're not going to change people's retirement behavior in fundamental ways. People already have plenty of encouragement to retire later but they just don't want to. If people don't like annuities, they don't like annuities. You're not going to harangue people into liking annuities.

     I see only one workable solution to the problems that Fichtner identifies -- beef up Social Security. Improve its long term financing. Increase its benefits significantly.  That would work. Why can't Fichtner bring himself to mention improving Social Security even as a possibility? The man has on right wing blinders. He can't see the obvious because it doesn't fit into his ideology.

Improve Retirement Income By Increasing The Minimum Wage

     From Market Watch:

...If a single worker with a life expectancy of 90 were to earn the current minimum wage her whole life, and claimed Social Security benefits at her full retirement age, she would receive a monthly benefit of $924, compared with that same type of worker earning $15 an hour, who would receive $1,337, said Bill Meyer, chief executive officer of software firm Social Security Solutions.

But Social Security benefits can also be calculated cumulatively — that is, the total amount in one’s lifetime. Cumulatively, a worker claiming at 62 after having earned the current minimum wage his whole life would receive $294,000 (assuming a 2% cost-of-living adjustment), and $398,000 if he claimed at 70. But if a worker earned $15 an hour and claimed at 62, he would see $425,000 in lifetime Social Security benefits, and $576,000 if he claimed at 70. ...

Do People Retire Later If They Receive Frequent Mailings Of Social Security Statements?

     From Can Informational Interventions Be Effective Policy Tools? An Initial Assessment of the Social Security Statement by Barbara A. Smith, published in the Social Security Bulletin:

The Social Security Administration employs an informational intervention—mailing Social Security Statements—to inform workers about their potential benefits. I use linear probability models and agency administrative data to analyze the effect of Statement receipt on the age at which workers claim their Social Security retirement benefits. I compare results for individuals who received one or multiple Statement mailings by age 62 with those who received none during the 1975–2007 study period. I find that workers who received multiple Statement mailings were significantly more likely to claim retirement benefits at later ages than were other workers, and that Statement receipt is positively associated with employment at ages 62–70. I also compare the relative effects of an educational outreach (Statement mailings) and a direct policy change (involving the full retirement age) on claiming behavior and find that the magnitudes of the two effects are similar.

Early Retirements Declining

     From Sean Williams writing in the Statesville Record and Landmark:

 ...  Between 1995 and 2016, more than 70% of retired workers receiving a [Social Security retirement]benefit had their payout reduced for early retirement.  ...

But as of December 2019, 67.3% of the close to 45.1 million retired workers receiving a benefit had their payout reduced. That marks the ninth consecutive year that early retirees declined as a percentage of total retired workers. ...

Social Security And The Wealth Gap

      From  No, the New Deal Wasn't Racist by Samuel Hammond:

... Without counting Social Security, the median-earning white Baby Boomer has 7.3 dollars in wealth for every dollar held by their Black counterpart. Account for Social Security, and that ratio falls to 2.2 — a spectacular two-thirds reduction in the effective racial wealth gap. ...

Living Longer But Not Working Longer

    The argument is commonly made that Social Security's full retirement age should be increased because people live longer now than they used to. Actually, life expectancy has declined recently but it is still higher than it was in past decades.

     I doubt anyone's mind will be changed but there's a new study showing that increased life expectancy has only minimal effects on labor force participation.

     I submit that the main reason older people are less likely to work than young people is that their health has declined and they're no longer able to do the work they've done in the past. How many people do you see working in construction who are in their 60s or even 50s? Even those who work in offices usually have health problems that keep them out of work more frequently as they get older. People live longer but we have no way of preventing aging from having effects on health and ability to work. Younger people like to visualize themselves remaining vigorous until they suddenly get sick and die but that's not the way it works for most people.