Essays on Rebuilding America: Social Security Reform

Columnist : Jonathan Williams

by Col. Frank Ryan, USMC Ret.

The mere mention of reforming social security raises fear in the hearts of so many Americans. As baby boomers start retiring in 2008, the legacy of years of neglect will become all too apparent.

The problems with social security are significant perhaps severe but they are not yet fatal! The longer it takes to enact a viable solution to the problem of funding and spending, the more severe the corrective action will be.

In the Social Security Trustees 2007 report, the trustees said “The financial condition of the Social Security and Medicare programs remains problematic; we believe their currently projected long run growth rates are not sustainable under current financing arrangements. … Medicare’s Hospital Insurance (HI) Trust Fund is already expected to pay out more in hospital benefits this year than it receives in taxes and other dedicated revenues. The growing annual deficits in both programs are projected to exhaust HI reserves in 2019 and Social Security reserves in 2041.”

The problem with the cautionary tale of the trustees report is that most people view 2019 and 2041 as something that can be forgotten about since the dates are so far away.

The concern about social security is compounded because all trust funds are invested in U. S. Government Securities. The perceived surplus we have all been told about was used to fund prior federal deficits. Let me say this in a different way. There are no social security investments. This means that as retirees draw benefits, that all funding for social security will have to come from the general faith and credit of the U. S. Government or increased taxes or both.

If a corporate executive ever did with a pension plan what the Congress has done with social security, he or she would be in prison.

The solutions to the under funded social security system have been many yet not one has passed the political palatability test such that no solutions have been enacted. Remember though that no decision is a decision.

Nothing that I am going to propose is going to pass that test either unless we collectively decide that failure of the system, either today, tomorrow or in 20 years, is not acceptable. Failing to take some action quickly is going to have devastating results. The legacy of debt that we are dumping on our children is obscene. Not only are our children not going to benefit from social security but we are bestowing upon them the distinct pleasure of shoring up a failed system simultaneously. What a travesty.

Remembering that no solution is going to please all, it is still crucial to start.

First, benefits for current retirees should not be affected. We have a moral responsibility to not adversely affect those with fewer options to respond to changes in their incomes.

With current retirees protected as a starting point, I would then encourage the Federal Government to allow all persons under age 30 to opt out of Social Security as long as the funds that would have been withheld be invested in the taxpayers own name. The employer portion would still be paid into the social security system to help shore up the legacy of debt that was created.

Any citizen who wished to opt out of social security beyond age 30 should be permitted to do so. You would receive social security benefits for the funds that they had contributed so far when they reach retirement age but those benefits would be frozen in today’s dollars. Again, the social security funds that would have been withheld would continue to have to be invested in a personal retirement account.

The retirement age for all under 40 should be increased by an additional two years.

The age to collect early social security benefits would be increased to age 64 versus the current age of 62 for all age 50 and under.

It is also crucial that we permit unlimited earnings for anyone who is currently retired and eliminate the taxability of social security benefits in their entirety. It makes no sense to provide a disincentive to people continuing to work particularly in light of the substantial retirements of baby boomers in the next 10 years.

Finally, the most important measure that we can all undertake to shore up a failed social security system is to begin to pay of our national debt, stop deficit financing except in national emergencies or in war, and reduce government spending across the board.

Corrective measures taken today, while not perfect, are far superior to the failure of a system of social security and the legacy of debt that we will leave our children and grandchildren. Unrestrained social security planning in the past is a cancer upon an economy and economic growth. The quicker we enact a cure, the less disruptive the cure will be.

Frank Ryan is a member of the Lincoln Institute Board of Directors and lectures for the AICPA and BLI on management related topics. He can be reached at [email protected].