I am old enough to start Social Security, but have not applied for benefits yet. I've decided to wait a few more years to let those benefits grow, giving me more support when I get older.
Aside from the question of whether or not this is a smart move, I am struck by the cynicism I encounter when talking to people about Social Security. A lot of my contemporaries say they started receiving their benefit as soon as they could, at age 62, figuring they'd better grab it while it's still available. Younger people in their 50s are even more anxious. As one friend told me, "I'm only 53. I have no idea when or if I will ever get any Social Security. People my age will take it ASAP if it's still there, since we've been threatened that we'll lose it."
These worries are not without justification. According to the 2013 report by the Social Security and Medicare Boards of Trustees, Social Security is already running a deficit. And largely because the number of beneficiaries will grow at a faster rate than the number of workers paying in, the Social Security trust fund will be depleted by 2033.
Most of us, throughout our careers, watched a sizable deduction come off our paychecks every two weeks. In return, we assumed Social Security would be there for us when we finally retired. We were never promised that Social Security would finance a luxurious lifestyle, but we did believe it would at least be there as a base income if things went wrong for us, or as a nice supplement to our retirement income if things went well.
Just how vulnerable is Social Security? What are the chances that a 60 year old, or a 50 year old, will see their Social Security benefits? What are the chances that our sons and daughters will get any Social Security?
Financial experts remind us that Social Security works like a low-cost, inflation-protected annuity – just the kind of investment retirees need to provide them with a stream of income. And actually, because the program is run by the government, it is reasonably safe. Why? Because as long as the elderly continue to vote, Congress will be reluctant to renege on payouts, at least for those already eligible to receive benefits.
Yet, others have pointed out that Social Security payments are already being shaved back. The retirement age has been increased from age 65 to 66, and to 67 for people born in 1960 or later. Medicare premiums are typically deducted from Social Security payments, resulting in less Social Security take-home pay. Also, Social Security payments are taxed for people above certain income levels, and the levels are not indexed to inflation. So, while ten years ago the median beneficiary did not pay any tax on Social Security, by 2033 the median beneficiary will be taxed on half their benefits.
Also, some economists are recommending a new way for Social Security to adjust benefits for inflation, resulting in – you guessed it – a method that produces lower estimates of inflation and thus smaller increases in future benefits.
Putting aside our varying opinions about what we feel should happen, what is most likely to happen to Social Security?
Social Security benefits will be there for future retirees, as long as the elderly continue to vote. Remember when President George W. Bush tried to sell a plan in 2005 to replace Social Security with a voluntary retirement scheme? The idea never got out of the starting gate. It seems pretty clear that Social Security will be around, in something close to its present form, at least for anyone age 50 or over.
However, there are plenty of economists and government officials who want to chip away at Social Security payments, especially when money starts flowing out as baby boomers retire. Officials will do it quietly, hoping that retirees won't notice too much, but they will trim where they can. And they'll likely make more dramatic cuts for future beneficiaries, because as time goes on the financial pressure will increase and younger people don't vote as much.
Social Security will be with us for the foreseeable future, maybe even for workers now in their 20s and 30s. But over time the benefits will slowly become a smaller part of the retirement picture. Social Security will probably be there as bare-bones support for retirees with little or no other income, and as a less-significant supplement for people who have other retirement resources.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up.