Our Fight: Keeping Social Security Strong

Source: AARP.org | August 2009

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 retiring, more people are getting benefits relative to the number of people paying into the system. In addition, people are living longer. So we need to make changes. Although Social Security will remain strong for decades to come, we need to strengthen it so that it will always pay adequate benefits. While it was never intended to provide all of a person's retirement income, Social Security is important to everyone's retirement safety net.
 
Our Future: No Immediate Danger

Social Security is in no immediate danger of "going broke." With the retirement of the boomers on the horizon, the Social Security Administration began building a cushion to see this generation through its retirement years. Thanks to that planning, the Social Security Trust Funds hold more than $2.4 trillion in U.S. Treasury bonds, which earn interest every year.
 
Without any changes, Social Security will be able to pay 100 percent of benefits until 2037 and more than 70 percent of promised benefits after that. Only paying 70 percent of promised benefits, however, is not acceptable.
 
Our Challenge: Addressing the Future Shortfall

The country can take some simple steps now to begin making a down payment on the future Social Security shortfall. AARP supports the following changes:

• Raise 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 $106,800 to approximately $213,000.
• Make 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 would make substantial headway toward 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 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, as witnessed by the significant downturn in the stock market that heralded the current economic crisis. Private accounts can lose money just as fast as they can make it. And, unlike Social Security, with money invested in the markets, you run the risk of outliving your savings. 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 the private accounts.
 
Therefore, AARP opposes private accounts that are financed out of the Social Security payroll contribution. By contrast, having private retirement accounts to supplement Social Security, you can provide for your personal retirement.
 
Social Security: More Than You Might Think

Many people do not realize just how valuable Social Security is to them. On average, an individual would have to save an additional $225,000 while working to replace the benefits Social Security provides in retirement. Independent investments, pensions, IRAs, and 401(k)s are all important parts of retirement savings, but so is Social Security. In fact, couples on average can expect about $22,000 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.