Two Social Security-related questions seem to be on many minds these days: Will the program still be around when I retire? And will I get everything I have coming from it?
Nobody knows for sure, of course, but allow me to venture a couple of educated guesses, based on talking with experts and plowing through a pile of recent academic papers. To the first question: Probably. To the second one: Maybe, but I wouldn't bet my retirement on it.
There's no denying that the Social Security system has some problems, chief among them its ability to take in enough money to meet its future obligations. By the year 2041 payroll taxes will be sufficient to cover only 78 percent of promised benefits, according to the most recent report from the program's trustees.
Nonetheless, I've not heard a single credible expert propose that the U.S. do away with the system. Even privatizing it, the next worst thing in the opinion of many of us, seems far off the table these days. So I think we can reasonably assume that Social Security will still exist in some form, at least for those of us old enough now to be concerned about it.
But for the system to survive, it will either have to bring in more income or slow its spending. That could be done by raising taxes, reducing benefits, delaying the age at which we become eligible for benefits, or some combination of these.
My money is on delaying eligibility, which seems the most politically palatable option. And if we can get past the fact that it would mean reneging on a promise made to many of us from the day we first started paying into the system, it even has some logic to it.
A working paper published this summer by the National Bureau of Economic Research (NBER) frames the argument this way: When the Social Security system started in 1935, the average 65-year-old retiree had a life expectancy of 12 more years; by 2004, that was up to 19 years. In other words, a system designed to support someone for a dozen years of retirement is now expected to do it for nearly 20.
The NBER calls this "age inflation" and goes on to calculate how eligibility ages might have been adjusted over time had that been taken into account. It concludes that the earliest age at which retirees can collect benefits, now 62, would have risen to between 65.6 and 67 by 2004. Normal, or "full," retirement age, now 66 to 67, would have risen to between 73 and 81.8.
This kind of thinking is likely to give Congress the cover it needs to consider fiddling with the eligibility ages. The politicians even have some precedent on their side. In 1983, the eligibility age for full benefits, long set at 65, was raised for those of us born after 1937, to its current range of 65 and two months to 67.
If you're already retired or within a few years of it, I would guess that changing the eligibility ages won't affect you much. It's hard to imagine that Congress would act that quickly or cause such havoc in the lives of a cohort known to vote in substantial numbers. But if your retirement is decades off, be forewarned.
Because Social Security is unlikely to become more generous in the years ahead, consider the eligibility ages and benefit amounts it currently projects for you as the best you'll see and adjust your expectations down from there. You'll find your projected benefits in the statement Social Security sends out each year about 90 days before your birthday. Or you can use the recently unveiled online calculator at www.ssa.gov/estimator.
Most readers of this newsletter probably aren't looking to Social Security as their sole source of retirement income. It may be just one slice of your retirement pie, which could also include a traditional pension, a 401(k) plan, IRAs, non-retirement investments, and so forth. But consider what would happen if the Social Security slice were to get even smaller. You'd need to adjust your budget and plan to live on less, or start saving more aggressively.
Surveys have shown that many of us intend to postpone retirement and work longer. That's a good thing, because we may have no choice in the matter. If your dream is to retire at, let's say, age 62, you'd better plan on making that happen without early Social Security benefits, which may not be available to you until several years later.
Another reason to continue working, if you can, is to stay on an employer's health plan. Though you're currently eligible for Medicare at age 65 regardless of your "full" retirement age, that could be up for debate too. In fact, the NBER paper also adjusted Medicare for age inflation, calculating that as of 2004, people would have become eligible at ages 70 to 72. So try to stay healthy, and stay tuned.
This article was also published in Consumer Reports Money Adviser. Subscribe now to get more expert financial advice you can trust.