Our Fight: Keeping Social Security Strong
AARP believes the current Social Security system needs to be strengthened. The longer we wait to come to a national consensus on what the adjustments will be the more painful the changes we will have to make.
As the boomer generation begins to retire, more people will be getting benefits relative to the number of people paying into the system. In addition, people are living longer. These are reasons why we need to make changes. Although Social Security will remain strong for decades to come, we need to strengthen the system so that it will always be able to pay 100% of benefits. While it was never intended to provide all of your retirement income, Social Security is important to your retirement security.
Our Future: No Immediate Danger
Social Security is in no immediate danger of going "broke." With the retirement of the boomers on the horizon, Social Security began to build a cushion to see us through their retirement years. Because of that planning, the Social Security Trust Funds hold over $1.5 trillion in U.S. Treasury bonds and earn interest every year.
Without any changes, Social Security will be able to pay 100% of benefits until 2040 and over 70% of promised benefits after that. Only paying 70% of promised benefits, however, is not acceptable.
Our Challenge: Addressing the Future Shortfall
Some simple steps can be taken to begin making a down payment on that future Social Security shortfall. AARP supports:
- Investing part of the Social Security surplus so that it earns higher returns than those offered by U.S. Treasury bonds. That way, we strengthen Social Security while sharing the risks of investing. We should not be creating a system where some people win and others lose when it comes to Social Security.
- Raising the cap on the amount of wages taxed to support Social Security to cover the same share of wages as in the past. That would gradually raise today's cap of $90,000 to approximately $140,000.
- Making Social Security a truly universal system by including all newly hired state and local government workers in Social Security.
These steps alone won't fill the entire future gap, but they are a substantial step towards solving the problem.
The Wrong Direction for Changes
Some people have recommended taking some of the money people pay into the system and diverting it into newly created private accounts. Because less money would be flowing into Social Security, the guaranteed and inflation-adjusted lifetime benefits would have to be cut. Maybe the investments in the account would make up the difference, and maybe they wouldn't.
Market returns can be attractive, yet they come at a risk. Private accounts can lose money just as fast as they can make it. And, unlike Social Security, you run the risk of outliving your savings and you lose the protection against inflation. Further, private accounts are expensive. Most of us would have to pay twice to create this new system - first to keep our commitments to current retirees and again to pay into these private accounts.
Therefore, AARP opposes private accounts that are financed out of the Social Security payroll contribution. Private retirement accounts in addition to Social Security, in contrast, are an essential part of personal retirement security.
Social Security: More than You Might Think
Many people do not realize just how valuable Social Security is to them. An individual would have to save an additional $250,000 while working to replace the benefits Social Security provides over an average retirement lifespan. Independent investments, pensions, IRAs and 401(k)s are all important parts of retirement savings, but so is Social Security. In fact, the average two-earner couple can expect $20,000 per year in Social Security benefits.
It is true that Social Security needs modest changes, but the guarantee it provides is one worth strengthening, not replacing.
