“And keep your retirement… And your so-called social security. Big city turn me loose and set me free.” — “Big City” by Merle Haggard
The first Social Security account was established in 1936 for 23-year-old John David Sweeney, Jr. of New Rochelle, N.Y., who never received a dime in benefits. Unfortunately, Mr. Sweeney died of a heart attack at age 61.
The average U.S. life expectancy in 1935 was 62. Today it’s 79. Unions, which once fought for not only livable wages but solid retirement packages, have declined in numbers and bargaining power.
Private pensions, a ubiquitous part of our historical economic landscape, are now virtually an anachronism. And Social Security was originally designed only to supplement such pensions as financial protection for retirees in old age. With 10,000 Baby Boomers retiring daily, it is easy to understand the factors that are stressing the system.
According to Liz Pullium Weston in “The Tax Cut That Taxpayers Need Most,” ‘Two thirds of U.S. seniors rely on Social Security for more than half their income and four out of ten say it comprises more than 80 percent.’ ”
So what is the future of Social Security in the U.S?
It’s probably better than we think. First, we Boomers comprise a tremendous voting bloc. And very few among us will support cutbacks in Social Security benefits. So the oft-espoused notion that Social Security benefits will not be there for our generation is probably hyperbole, in spite of our national budget woes.
Our population is aging, though not as fast as those of other developed nations. And, owing partly to our relatively friendly immigration policies, our population is not shrinking. As John Parker of The Economist writes, “… almost 20 countries have declining populations, including large ones such as Germany, Russia and Japan. By 2050, two dozen more will have joined them, including … China. Since most countries’ health and pension programs have assumed that each successive generation will be slightly larger than its predecessor, aging and shrinking implies substantial changes in the way social programs are run.”
Will changes in U.S. Social Security occur before, say, 2025? Probably. With life expectancies growing, it is reasonable to assume that raising the minimum eligibility age (currently 62) will be one of the first systematic changes. Many see this as the most democratic potential change.
Currently, folks pay Social Security tax only on their first $117,000 of earnings. While this number rises slowly every year, a jump to a larger number like $150,000 would shore up some cracks in the coffers. But, this essentially represents another tax on America’s higher wage earners, a group already paying significant individual tax rates. This is truly a “tax by another name.”
Means testing? Let’s don’t go there.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a fee-only and fiduciary registered investment advisory firm located near Sandestin.