Redefine the contract to make Social Security sustainable
Flaws in Social Security can't be fixed with a little tinkering. To avoid stark choices early in the next century including sharp hikes in taxes and reductions in other government programs significant changes must be enacted to meet the needs of future retirees. The demographics of the baby boom generation and the smaller generation that follows it require pared down benefits and revised eligibility rules. Commitments to older Americans must not jeopardize other public needs. We will have to trim benefits, especially to those who need them least, and reverse the trend to early retirement.
What Should be Done?
Scale back the cost-of-living adjustment and reduce benefits for upper-income retirees. Gradually raise the age at which individuals qualify for full retirement benefits. Gradually raise taxes for Social Security, which are paid jointly by employers and individuals.
Arguments For This Approach
Circumstances have changed drastically since Social Security went into effect. It's time to adjust benefits and eligibility criteria accordingly. The current system is based on outmoded assumptions about who's old. There is no good reason to offer inducements to early retirement, or even to encourage most people to retire in their mid-60s. Government benefits should be targeted to those who need them. Affluent retirees don't need public subsidies. Unless benefits are reduced or taxes raised, these programs will be unsustainable, as fewer and fewer workers pay for more and more retirees.
Arguments Against This Approach
If benefits were reduced, many retirees would be in financial peril. Currently, half of all single women over 65 live on less than $12,000 a year. It's misleading to focus on the ratio of workers to retirees. As long as economic growth is robust, the nation can afford current retirement benefits. Scaling benefits to retirees' income will undermine support for Social Security, which is popular because it's a universal program. Furthermore, it would penalize people who have worked hard and been financially prudent. Millions of Americans have made retirement plans assuming current benefit levels and eligibility criteria. It's a bad idea to change the rules in the middle of the game. It's not sufficient to change benefits and eligibility criteria. To meet the needs of future retirees, the system needs to be radically redesigned.
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