Shoring up Social Security over the long haul


BUFFALO, N.Y. (WIVB) – Lawmakers on Capitol Hill are facing some tough decisions — and they know it.

What to do about social security’s long-term financial challenges?

“Everyone agrees we are on the path of insolvency for Social Security,” said Rep. Tom Reed (R) Corning, whose district includes the Southern Tier.

Reed believes the sooner Congress acts, the better for everyone.

“To me the point is, it is in a path that has to be taken care of in order to protect it for generations that are going to rely upon it and need it.”

According to a 2016 Trustees’ report, Social Security can pay full benefits for about 20 years, but then will faces significant funding shortfall.

It’s estimated that if policymakers took no action, the combined Old-Age and Survivors Insurance and Disability trust funds will be depleted in 2034.

After 2019, interest income and redemption of trust fund asset reserves from the General Fund of the Treasury will provide resources needed to offset Social Security’s annual deficits until 2034, when the reserves will be depleted, the Trustees’ report states.

“It’s a little complicated when you get into the details of it,” Reed said. “A lot of people think it’s kind of this lockbox where there’s a savings account and people put their money in the savings account, and it’s there for them and future generations.”

Not so, says Reed.

“It’s about making a contribution. You pay for the present generation and then in the future the promise has been made to you. You need that continuous income coming in to make sure those benefits are sound,” he added.

Samantha Frank — a University at Buffalo business student — wonders whether she’ll be able to collect retirement benefits when the times comes.

“It’s scary to think that it may not exist,” said Frank.

From her vantage point Social Security looks a bit murky, which prompted her to start saving for the future.

“We should have it because we’re putting money into it now. But worst comes to worst — it’s not there — at least I have this money saved that I can resort to.”

UB business student Alex Goldberg is also thinking about the long-term shortfall projections.

“If I’m going to keep putting in, what am I putting in for if I’m getting very little, or nothing out of it,” he said.

Is this kind of fear unnecessary?

Financial advisor Anthony Ogorek is fairly confident Social Security is here to stay.

“In the event the trust fund went bust, which it will not, but in the event it did; worst case scenario you would be getting 80 percent of your benefits,” Ogorek said. “ But that is not going to happen because Congress will deal with this.”

Some think tax increases and benefit modifications could put Social Security back on track.

“A lot of people would be upset,” said Charles Jeszeck, who’s with the U.S. Government Accountability Office, the investigative arm of Congress.

“You either put more money in, or you cut benefits,” Jeszeck explained.

He says the future of Social Security has been studied exhaustively over the last decade.

“It’s a very contentious program and people have very strong views on what should be done,” he added. “The sooner you take action you can phase in the changes. It allows people to take other actions; save more, or do other things depending on what you’ve done.”

But there’s not much of an appetite when it comes to reducing benefits.

A survey by the Pew Research Center found that about seven-in-ten registered voters say benefits should not be reduced in any way; while about a quarter believe some reductions for future retirees need to be considered.

“There is no easy solution,” said Isaac Ehrlich, chairman of the University at Buffalo Economics Department.

“It’s very difficult to give a specific answer to it, but I would have to say some combination of increased taxes and reduced benefits would have to be done, and the increased taxes could be done by delaying the age at which you can receive benefits,” Ehrlich said.

There are several proposals being floated to deal with the solvency question, which include raising the full retirement age, reducing benefits for higher earners, and changing the payroll tax cap.

Social Security currently taxes the first $118,500 an individual earns.

Tom Reed, who sits on the powerful House Ways and Means Committee, says he’s committed to getting something done.

“Once you break through the politics of this issue and you’re not afraid to take it on like we are you can get to solutions,” he said. “It’s the political will. We need more leadership. We need commitment.”

Cheektowaga residents Fred and Mary Bloom are collecting benefits. They understand that tough choices have to be made.

“Maybe upping the retirement age for people. Maybe taking more taxes out,” Mary suggested.

“Making sure that it isn’t borrowed from Peter to pay Paul,” Fred added with a laugh. “That it is there. That’s the idea behind it, and that’s what it was intended for.”

Isaac Ehrlich, Melvin H. Baker Professor of American Enterprise in the School of Management, points out that the Old-Age and Survivors Insurance has already reached the point where “outlays exceed contributions.”

He says up until now the trust fund had large reserves because “we were not on the red.”

“The surpluses enter the trust fund, which is essentially an obligation of the government to pay the trust fund,” Ehrlich explained. “But if outlays exceed contributions how does the government make good on their promise to compensate the trust fund?”

He says the government would take some of the general revenue and spend it on Social Security.

“The trustees are saying at this point that these IOUs would disappear entirely in 2034 for the combined OASI and DI systems. There would be nothing left,” he added. “The government will have to assume the full burden for the benefits.”

The Center on Budget and Policy Priorities points out that Social Security’s trust funds increased dramatically following amendments passed in 1983, “which has helped to finance the retirement of the baby boom.”

“The principal and interest from the trust funds’ bonds will enable Social Security to keep paying full benefits until 2034,” the report stated. “Social Security will be able to redeem its bonds just as any private investor might do.”

According to Kathleen Romig, the CBPP report’s author, “When Social Security needs to start cashing bonds to pay benefits, the federal government will have to increase its borrowing from the public, raise taxes, or spend less.”

“That will be a concern for the Treasury – but not Social Security,” the report concludes.

The combined trust fund reserves are still growing, totaling $2.81 trillion in 2015.

But some wonder if there are real assets in the trust fund, and whether the federal government is “raiding” the fund for other programs and leaving it dry.

“It’s sort of true, but it’s not really true,” said Richard Schroeder, chief investment advisor for Level Financial Advisors in Amherst.

He says when Social Security was reformed in 1983 to get ready for the baby boom generation, extra money had been collected and invested in U.S. government securities.

“Investors all over the world buy U.S. government securities. They don’t consider it theft. They’re buying something that’s backed by the government and they make interest on it. It’s the same with Social Security,” Schroeder said.

He says trust fund money is already being spent to pay current benefits. If not, he argues, retirees would be getting about 12 percent less in benefits.

“They’re actually redeeming the securities as time goes on to pay us the benefits,” he added. “They collected almost $100 billion of interest from the U.S. government last year back into the trust fund. And so that’s a $100 billion we don’t have to pay in taxes to pay for retirees’ benefits.”

Schroeder says the extra money had to be put somewhere, and that U.S. government securities was the only market big enough and safe enough to handle it.

“The Chinese have poured hundreds and hundreds of billions of dollars into the same U.S. government debt that Social Security is invested in because they think it’s a safer place to have their money than in Chinese real estate, or their own stock market, or the yuan, and it’s the same all around the world.”

Social Security’s trustees are recommending that lawmakers address the projected shortfalls in a timely manner “in order to phase “necessary changes gradually” and give workers and beneficiaries “time to adjust” to them.

“This is going to get fixed,” a confident Anthony Ogorek added. “I just wish we can lower the level of fear on people, but also they should get off their duffs and contact their representative and say we need a solution for this now. Instead of fighting with each other, how about taking care of us for a change.”

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