After President Obama's debt commission, Social Security is
becoming a popular target for fiscal hawks. But Social Security will
never add a dime to the debt, and Washington ought to be paying more
attention to an actual crisis: the retirement income deficit.
Washington is panicking over the national debt. Powerful members
of Congress, spurred on by recommendations made by some members of
President Obama's recently concluded fiscal commission, are planning
an aggressive legislative agenda to balance the books. Part of this
strategy is attacking Social Security.
Workers and retirees alike should be alarmed.
Correcting the myths
Focusing on Social Security cuts is misguided on two counts.
First, it wrongly assumes that Social Security is going broke and
causing a long-term fiscal crisis. Second, it ignores a much more
urgent financial crisis in our midst: the retirement income deficit -
representing the gap between what people have saved for retirement
today and what they would need to have saved by today to meet a
basic threshold of adequacy in retirement.
Deficit commission: Four things both sides may agree on
If the new Congress is serious about both protecting economic
security for older Americans and getting the economy back on track,
the last thing we should do is cut Social Security. We should
strengthen it, and work to create a new reliable private retirement
income system on top of it.
Contrary to the widespread myth further forwarded by the
commission, Social Security is neither going broke nor causing our
federal deficits. It never contributed and, unless the law is
changed, never will contribute a penny to the debt. It is self-
financing, has no borrowing authority, and cannot pay benefits
unless it has the income on hand to cover the entire cost.
Today, Social Security is running surpluses and will be in sound
financial shape for nearly three decades. Even after that, its long-
term shortfall can be addressed easily without cuts. If a
corporation could make such claims to its shareholders, it would be
cause for champagne, not gloom and doom.
The retirement income deficit
What is a source for gloom is the massive retirement income
deficit already facing millions of Americans. Calculated by the
Center on Retirement Research at Boston College, the Retirement
Income Deficit is already $6.6 trillion - five times the size of the
The retirement income deficit covers households in their peak
earning and saving years -- those in the 32-64 age range. It assumes
that people will continue to work, save, and accumulate additional
pension, retirement savings, and Social Security benefits until they
retire at age 65, later than most people currently retire. It also
assumes that retirees will spend down all their wealth in
retirement, including home equity. The $6.6 trillion is thus in many
respects a conservative number.
Cuts to Social Security will only make the retirement income
deficit worse. Social Security was intended to provide only a
minimal foundation of retirement income, with private sources making
up the rest. Our current problem is that in practice, Social
Security is the lion's share of retirement for most Americans: it's
half the income for two out of three retirees and virtually all the
income for one out of five.
And these benefits amount to subsistence payments: $14,000 for
the typical retiree. …