Social Security Defenders Circling the Wagons

Alarms being raised at possibility of recommended program changes by Presidential deficit commission.

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Defenders of Social Security are taking steps to alert or, depending on one's point of view, alarm the public about possible changes to the program. The National Commission on Fiscal Responsibility and Reform, appointed earlier this year by President Obama, is expected to address Social Security and other major sources of federal red ink in recommendations late this year. Enormous budget deficits have raised both sincere and politicized concerns that spending cutbacks are unavoidable, and that no programs should be considered off the table when considering changes.

[ See America's Best Affordable Places to Retire.] Last week, the National Committee to Preserve Social Security and Medicare sponsored a public opinion poll on attitudes toward Social Security. The poll found that people overwhelmingly oppose messing with Social Security. Little wonder.

The vital role of Social Security was newly demonstrated during the recession. When private retirement accounts and even some pensions were diving quickly into the tank, Social Security continued to meet its obligations. And due to long-term cutbacks of  employer retirement benefits, the role of Social Security has grown even greater.

Without Social Security benefits, most retired Americans would be thrown into poverty. Most retirees and those near retirement age have little or no private savings set aside. We can bemoan the failure of individuals and their employers to create meaningful private nest eggs. There have been big improvements in 401(k) participation in recent years, but it will take a long, long time for such changes to add meaningful amounts to retirement portfolios.

So, with Social Security being the last and only line of financial defense for millions of older Americans, why would anyone want to change it? For starters, it's running out of money, and the recession has accelerated this process. True, the program has enough resources to meet all anticipated payment needs for the next 27 years. When many people are wondering how to pay next month's bills, 2037 seems so far off as to be irrelevant. Yet, younger Americans don't believe Social Security will be there for them. They deserve the same kind of assurance about the program that older Americans have enjoyed.

[See Social Security Looks Good From Here at 75.]

The second reason to financially mend Social Security is that the federal deficits have to stop. And while Social Security is a relatively minor problem, it has assumed mythic stature as an untouchable program. What better way to convince people -- citizens, businesses, and the foreign governments and investors who own U.S. debt -- that we are serious about tackling our deficits than to take on Social Security?

Third, the sooner we adjust Social Security the smaller the corrective steps need to be to get the program on a long-term sound footing. Most senior advocates support the idea of raising the amount of money higher-income employees pay into the system. This wouldn't fix the entire shortfall, experts say, but combining it with a gradual increase in the retirement age could largely close the gap. Given that most people already are living, on average, more than 15 years longer than when Social Security was enacted in 1935, tacking on a few years to the retirement age doesn't seem like a calamitous burden.

The next "least painful" change from where I sit would be to s-l-o-w-l-y make the annual cost of living adjustments (COLA) for Social Security a bit less generous. And a bit should be just that. We don't need a major rollback in the COLA.

If we could agree on closing the funding gap using some combination of these three levers, we can avoid proposals that would affect benefits directly. A debate on actual cutbacks would turn nasty in a hurry, and should be avoided.

AARP supports closing the Social Security funding gap but the only change it has publicly endorsed is increasing the current $106,000 wage cap on Social Security taxes. Last week's National Committee poll also found this the only proposed change to the program that received strong support, including from the higher-income individuals who would be affected by it.

The poll floated three other trial balloons that were all shot down:

1) Raise the retirement age to 72: strongly opposed by 65 percent of the respondents; not so strongly opposed by another 13 percent.

2) Create a flat rate benefit regardless of a person's income: strongly opposed by 61 percent; not so strongly opposed by 13 percent.

3) Reduce the starting benefits for new retirees: strongly opposed 42 percent; not so strongly opposed by 18 percent.

The first two questions involved changes that are more extreme than most of the measures that have been suggested. It would be helpful to see how people felt about raising the retirement age by smaller amounts. However you slice it, the changes need not be huge or disruptive. A U.S.Senate compilation of possible Social Security changes, and their financial impacts, was released in May. Here are three changes that would pretty much close the gap entirely:

Increasing the retirement age. The age at which people are entitled to full Social Security benefits is now 67 for younger employees. Raising it by two or three years over as many decades could close about 30 percent of the program's funding shortfall.

The COLA. Subtracting half a percentage point from the annual COLA would reduce 40 percent of the gap all by itself. (This means that if the cost of living went up 4 percent in a year, the COLA would raise benefits by only 3.5 percent.)

The wage cap. Gradually boosting the cap to 90 percent of earnings would trim an estimated 28 percent of the shortfall.

It is understandable that senior advocacy groups are leery of volunteering cuts in Social Security. You don't show your cards before you bet in poker.  Let's hope that behind the scenes, they are working on a package of modest adjustments that seniors can live with. However, if they adopt a "status quo" stance toward the program and oppose changes, they appear as just another special interest group.

More to the point, there is no way for the country to start the financial healing if we can't even agree on this set of relatively easy and painless changes.

[See 8 Realities of the New Retirement.]