Is Social Security In Your Future?

     When I tried to figure out when would be a good time for me to start taking Social Security, and then posted an entry on the topic, I was struck by how many people wondered if they would be getting any Social Security at all.

     Terry wondered if it'll still be around in 8 years when she's ready to retire, and Morrison sighed, "I just hope it's still there."

      Joanna Jenkins warned, "Cross your fingers that there will even be Social Security by the time you're able to collect." And JBO wrote, "Since I am in the 'you may lose it' category of 53, I have no idea when or if I will ever get any. I am pretty sure people my age will take it ASAP since they have been threatened to lose it."

     The worries are not without some justification. According to this report by the Social Security Board of Trustees, Social Security is already running a deficit. And largely because the number of beneficiaries will grow at "a substantially faster rate than the number of covered workers," the Social Security Trust Fund reserves will be "exhausted in 2036." 

     Of course, predicting the financial future is even more fraught with error than predicting the weather. The year 2036 is a quarter of a century from now. As a comparison, think about the world of 25 years ago -- 1986, when there was no internet, no email, no cellphones, when the Berlin Wall was still up, and so were the Twin Towers and nobody had heard of Osama bin Laden and Ronald Reagan was president. A lot can happen between now and 2036.

     All I know is that throughout my career, watching a pretty sizable deduction come out of my paycheck every two weeks, I assumed that Social Security would be there when I finally got to retire. I did not assume Social Security would cover all my expenses -- nobody I knew ever assumed that -- 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 for us.

     But now, it seems, people are beginning to wonder if Social Security will survive at all. Many Baby Boomers intend to start grabbing payments as soon as they can -- not because they're greedy, but because they're afraid that Social Security as we know it is going away, and they want to get back at least a small part of their investment before the whole thing goes down.

     It's a shame, really, that people are losing faith in Social Security, just as they are losing faith in Wall Street, the American economy, American business, their elected representatives, their governments in the state house and Washington ... in everything, really.

     But does it make sense? Just how vulnerable is Social Security? What are the chances that a 60 year old, or a 50 year old, will never see a Social Security check? What are the chances that our sons and daughters, now in their 20s and 30s, will see a Social Security payment?

    In last Sunday's New York Times Richard H. Thaler, an economics professor at University of Chicago, wrote in "Getting the Most Out of Social Security" that most people would benefit by delaying when they start receiving Social Security payments. He agrees with my own analysis in "Did you Miss Your Social Security Check?"  It's a safe, guaranteed and inflation-protected annuity, he avers, an investment that more retirees should use to provide them with a stream of income.

     He argues that Social Security is inflation protected, fairly priced and "because it is run by the government is reasonably safe." Then he goes on to say, "Claiming that Social Security benefits are safe may sound naive, but my view is actually quite cynical. I believe that as long as the elderly continue to vote in large numbers, no Congress will renege on promised payouts for those already eligible to receive benefits."

     On the other hand, Alicia Munnell pointed out in a Smart Money article called "3 Ways Your Social Security Payments Are Already Being Cut" there are existing policies in place that will mean fewer and smaller payments to future retirees. One is the increase in the retirement age, slated to go up to 67 for people born after 1960. A second "pay cut" comes from the fact that Medicare premiums, which are deducted from Social Security payments, are increasing faster than benefits, resulting in less Social Security "take-home" pay. And finally, Social Security payments are taxed under the personal income tax for people above certain income levels, and the levels are not indexed to inflation. The result:  in 2002 the median earner did not pay any tax on Social Security benefits, but by 2030, under current law, the median earner will pay tax on half the benefits.

     And Catey Hill, just last week at Smart Money, reported in "Coming Soon: Smaller Raises for Seniors" that Congress is considering 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 benefits. "Under the new calculations," she concludes, "after ten years, the average 73 year old would get a check that's about 3 percent smaller than he would get under the old calculations."

     Putting aside our varying opinions about what we feel should happen to Social Security, what seems most likely to happen to Social Security is that:

     1)  Social Security benefits will be there for future retirees. As Richard Thaler suggests, as long as the elderly continue to vote, Congress will be very circumspect about curbing benefits. Remember how far President George Bush got with his plan to replace Social Security with a voluntary retirement plan? Never got out of the starting gate. The Tea Partyers? They make a lot of noise, but they're nowhere near a majority. It seems pretty clear that Social Security will be around, in something very close to its present form, at least for anyone age 50 or over.

     2)  However, there are plenty of people -- Senators, Congressmen, government officials, economists -- who want to chip away at Social Security payouts as the great mass of Baby Boomers begins to apply for benefits and money starts flowing out of the Trust Fund at a faster and faster rate. They've already begun to trim wherever they can, and they'll continue to cut around the edges. They'll do it quietly, hoping that retirees won't notice too much. And they'll make more dramatic cuts for future beneficiaries, because younger people won't complain as much -- and don't vote as much.

     Who knows what natural disaster, economic collapse, or international conflict will drastically change our lives? But the most likely scenario seems pretty clear:

     Social Security will be with us for the foreseeable future. For 25 years at least, and probably more. Maybe even for our sons and daughters now in their 20s and 30s. But over time the benefits will slowly lose their purchasing power, one way or another, as they become a smaller and smaller part of our retirement income.

     Or, as we knew all along ... Social Security will be there as a bare-bones base income if things go wrong for us, or as a somewhat-less-significant supplement to our retirement income if things go okay.

   {An edited version of this article was first published on Technorati.}