We can’t wait to fix Social Security
The U.S. is running out of road to kick the can down
One need only see the headlines from France to see how volatile the issue of social safety net reform can be. Many citizens throughout France are in up in arms over the proposal by French President Emmanuel Macron to raise the legal retirement age from 62 to 64.
Macron has bitten the political bullet in hopes he can wake up his country and put France’s public pension system on better fiscal footing as life expectancy increases while the number of younger workers to retirees decreases with each passing day.
The United States faces some of the same issues as France, and the clock is ticking to put the country’s top social programs — Social Security and Medicare — on better financial footing.
In March, the annual Social Security trustees report estimated that the trust funds could be exhausted in 2034 — one year earlier than projected last year. The insurance trust fund for Medicare can pay full benefits until 2031, which is three years later than last year.
An estimated 67 million Americans rely on Social Security benefits. Unless Congress takes action, at that time in 2034, distributions will drop to 80 percent of previous levels, the report said.
The consequences to the economy would likely be harsh and unforgiving with Gen Z bearing the majority of the burden for the way the 20 to 25 percent funding gap is solved.
Rational policy alternatives to deal with Social Security’s flaws have fallen victim to political polarization. But demographic trends and truths pay no mind to politics. Fewer workers to pay for more retirees is reality.
When Social Security was formed, and the retirement age of 65 set in 1935, the average life expectancy was roughly 60 for men, 64 for women. An estimated 7 percent of the population was over the age of 65. According to the Centers for Disease Control and Prevention, the life expectancy in 2021 was 76.4 years (73.5 for men and 79.3 for women), and more than 17 percent of the population was over the age of 65. (These numbers were at their lowest in two decades due to Covid-19 pandemic and the lethal opioid crisis.)
Social Security has had numerous fixes over the years, such as the full retirement age moving from 65 to 66 and two months and then to 67 for those born after 1960, and some tax increases. But one does not need to be an expert to see the program designed in the 1930s needs adjustments to ensure its solvency for future generations.
The issue of funding Social Security raises many more questions than solutions and has been talked about for decades. What is needed is less a magic bullet solution than a social consensus to tackle this multigenerational problem with a multidimensional solution.
Tom believes his baby boom generation has done a neglectful job of leaving the country in a better place (literally and metaphorically) to the generations following them, and Social Security is the tip of the iceberg of serious fiscal faults in the country.
Of course, if doing the right thing was easy, politicians and a passive public would have already addressed this. We need to have honest debates about what to do. But we believe that solutions, challenging and difficult to be sure, are available. Here are a few:
• First, we need to get to raise the retirement age from 67 to 70 and the early retirement age to 65 (from 62).
• Second, we should give flexibility to wealthy recipients to decline participation or to donate their monthly distributions to qualified charities (such as we see with qualified charitable donations with IRAs) or their fellow citizens.
• In the spirit of shared sacrifice, Social Security taxes must be raised on earners up and down the scale, and the politically imposed artificial taxing limit of $160,200 must be modified without disproportionately impacting millions of already strained millennials and Gen Z.
The public — especially younger generations — can no longer remain passive in hopes that “somebody” will solve the problem. It will take effort, inspiration and advocacy to push and prod politicians to come together and do the right thing.
Kicking the can down the road no longer works when you run out of road.
Tom Sedoric is partner, executive managing director and wealth manager, and D. Casey Snyder is partner, senior vice president and wealth manager of The Sedoric Group of Steward Partners in Portsmouth. They can be reached at thesedoricgroup.com.