Will Social Security disappear?

Story and photo by Alexis Young

Social Security may be in jeopardy after the baby boomers, bigger than any generation before them, retire. There are about 78 million baby boomers in the U.S. The oldest will turn 62 next year, which is the age they qualify for Social Security benefits.

Rob Ence, the Utah state director of American Association of Retired Persons and an upcoming baby boomer himself reaching retirement age.

Social Security will be put to the test. Rob Ence, the state director of American Association of Retired Persons (AARP) in Utah, said without changes, Social Security faces a long-term economic shortfall.

“Payments of Social Security will rapidly exceed the baby boomer surplus. The system will only be able to pay out 70 percent of projected benefits after the year 2037, not the 100 percent current benefits,” Ence said.

According to the AARP Web site, Social Security is a public welfare program that started in January 1937. It is funded by taxes and administered by the federal government. Benefits are based on your year of birth, 35 of your highest years of earnings, and the age at which your benefits begin.

“It is not a retirement plan, and was never intended to meet all the needs in retirement, but rather a floor to protect against poverty in longevity,” Ence said. Social Security has always been designed to give a minimum level of support, and was designed to provide for sustenance needs.

Many baby boomers did not plan for retirement. “Consumption and debt accumulation have been the trend, and the self-indulgence will force dramatic reduction in lifestyle during retirement,” Ence said. “Because baby boomers haven’t saved, it is going to be quite difficult for them to rely exclusively on Social Security income. Those that do will have hardships in the cost of living expenses.”

Ence, an upcoming baby boomer himself reaching retirement age, is one of the few who is properly saving for retirement. “I am now 57, I have an excellent defined benefit plan with my employer, and I set aside 11 percent of my income monthly in a 401(k),” Ence said. “If my health is good, I plan to work full time until age 68-70.” Not having to depend entirely on Social Security, and planning on a sufficient monthly income after he retires, Ence intends to travel and participate in extensive service throughout Utah and perhaps abroad.

According to AARP’s November 2009 Social Security report, 49.9 million people throughout the country receive Social Security benefits (about 16 percent of the population). The Social Security Administration estimates 91 percent of Americans age 65 or older receive benefits. Among these people, Social Security is the major source of income for two-thirds and virtually the only source of income for the other one-third.

Rising unemployment, declining savings and an upcoming wave of baby boomers reaching retirement age has increased the number of people applying for Social Security benefits, which are available as early as age 62.

“It is unwise for a person to file for Social Security before age 66. People should work as long as they want to and are able,” Laura Polacheck, an attorney with AARP, said. Older adults, who take Social Security benefits before age 67, the established retirement age, get a reduced monthly amount. Polacheck said people need to think earnestly about the outcomes of taking early retirement benefits and consider their options.

Heather Spencer, an associate economics instructor for the University of Utah, points out taking a reduced benefit now may weaken one’s expectations of life later on. “Most Americans view Social Security as a retirement plan, and feel entitled to benefits when they are 65 or older,” Spencer said. “Be realistic, you want to plan on having the same standard of living both pre- and post-retirement.”

For an individual born after 1943, every year you delay the acceptance of benefits after your normal retirement age, you get a delayed retirement credit of 8 percent up to age 70, according to the Social Security Web site.

Spencer offered a list of suggestions that the government needs to do to keep Social Security viable for future generations:

• Make yearly adjustments that keep up with inflation.
• Change the cost of living from the average wage to the consumer price index.
• Increase the retirement age to 69.
• Raise the amount of income subject to Social Security taxes.
• Reduce benefits.
• Invest the trust fund money in reliable products.
• Make Social Security “means” tested, which suggest if a person does not need the extra income, they would not collect the benefits.
• Advance retirement assistance that meets the needs of American workers.

“Those things alone will more than account for any projected shortfalls, and will keep Social Security solvent for the unknown future,” Spencer said.

When asked if Social Security is going away or going to continue, Ence said he did not think it will go away, nor would he want it to. “It is the most successful social program ever created in our country, and a model for success internationally,” he said. “We need to recognize that Social Security needs to be modified to be sustainable, and not a burden for future generations.”