May 08, 2024
Polls always show that many people, especially young people, don’t expect to see their Social Security benefits. I have been writing on this stuff long enough that many of the same young people who told me 30 years ago that they would never see their benefits, are now collecting Social Security.
The idea that Social Security is about to disappear is basically a flat earth-type lie. There is no economic reason that we can’t pay benefits into the indefinite future, as long as we don’t face some sort of economic collapse from something like nuclear war or a climate disaster.
As the program is now structured, it is projected to face a shortfall beginning in 2035. After that point, if the law is never changed, it can still pay over 80 percent of scheduled benefits.
To be clear, it would be a very bad story if retirees were forced to take a 20 percent cut in benefits. But 80 percent is far more than zero, so the idea that people will receive no benefits after 2035 would require that Congress actually take action to terminate the program. In an electorate that will have an even larger share of retirees than we have today, that seems pretty hard to imagine.
In fact, it is difficult to imagine elected representatives in 2035 even going along with a 20 percent cut in benefits. While there will undoubtedly be considerable political wrangling over the structure of the program going forward, it seems unlikely that the bulk of the shortfall will be made up on the benefit side. There could be some benefit cuts, but these would likely be relatively minor. Most people would continue to see the bulk of their scheduled benefits.
Given this reality, it was incredibly irresponsible of the New York Times to begin a major piece on retirement income by profiling a worker who says that they don’t expect to see their Social Security benefits. The piece begins:
“Jen Forbus turned 50 this year. She is in good health and says her life has only gotten better as she has grown older. Forbus resides in Lorain, Ohio, not far from Cleveland; she is single and has no children, but her parents and sisters are nearby. She works, remotely, as an editorial supervisor for an educational publishing company, a job that she loves. She is on track to pay off her mortgage in the next 10 years, and having recently made her last car payment, she is otherwise debt-free. By almost any measure, Forbus is middle class.”
It then tells us that she wants to retire at age 65. She currently has $200,000 in savings. Between her own contribution and her employer’s she puts 14 percent of her pay into a retirement account each year.
Then it reports:
“Forbus figures that she can retire comfortably on around $1 million, although if her house is paid off, she might be able to get by with a bit less. She is not factoring Social Security benefits into her calculations. ‘I feel like it’s too uncertain and not something I can depend on,’ she says.”
Given the economic and political realities around Social Security, it is absurd that Ms. Forbus, or anyone else, would make their plans for retirement based on the assumption that the program does not exist. In her case, her benefits are likely to make up a very substantial portion of her retirement income.
The piece tells that she earns a high five-figure income. Let’s assume that comes to $80,000 a year. In that case, if she retires in 15 years at age 65, she can expect benefits of roughly $39,200 a year (in today’s dollars). This would come to more than half of her current wage income (net of payroll taxes) of $73,900.
Even if Congress never did anything to shore up Social Security’s finances, and let benefits be cut by 20 percent, Ms. Forbus would still be getting $31,400 from the program, more than 42 percent of her current income net of payroll taxes. Based on the fact that she already has $200,000 in savings, is adding 14 percent of her salary each year, and will have a paid off mortgage, she should be able to look forward to a very comfortable retirement.
In short, if Ms. Forbus has fears about her retirement security, it is due to her having been misled about the health of Social Security. For this reason, it is unfortunate that the NYT piece chose to use her as the basis for a major piece on retirement income.
The reality is that most moderate and even middle-income workers are not anywhere near as well-prepared for retirement as Ms. Forbus. Many workers have accumulated little or nothing in the way of retirement savings, even as they are well into middle age. These workers have been failed by the current system of 401(k)s, since they will be dependent almost entirely on Social Security in their retirement. By contrast, Ms. Forbus is doing just fine, she just needs someone to tell her the truth about Social Security.
Comments