The world the oldest baby boomers were born into and the world they are leaving behind as they begin to exit the workforce is an interesting, albeit somewhat depressing, paradox to consider.
Born in the immediate post-war America of the 1940s and 1950s, these boomers entered a country at the height of its prosperity — a country able to flex its superpower muscle in a way not seen anytime before or since. War proved to be good business and the Depression-era America their parents lived through was a distant memory as the boomers came of age.
And now? The U.S. is struggling to pull itself out of the Great Recession, the labor market is in tatters, the housing market remains a mess and Americans everywhere face a severe savings shortage. Oh, and America as the global superpower without equal? China’s on line one.
This is not to imply that the baby boomers inherited a perfectly fine country from their parents and are leaving it in ruins as they head toward retirement. (Though, truth be told, some people are making this argument). But there is little doubt that the oldest boomers are going to be retiring amid much dread and uncertainty about the country’s financial well-being. And perhaps nothing encapsulates these two feelings—dread and uncertainty—more than Social Security. It’s a topic that has previously been covered in this space, but a recent survey by USA Today/Gallup Poll again brings the issue back to the forefront. The survey of 1,020 adults taken July 8-11 found that a record six of 10 non-retirees believe that Social Security won’t be able to pay them their benefits once they reach retirement. The sentiment is especially prevalent among those 18 to 34. Furthermore, the percentage of retirees who predict a cut in their benefits cuts has jumped 24 points since 2005. But, as a report in USA Today noted, the benefits of current retirees have never actually been cut.
So what to make of this growing lack of confidence in Social Security? Should people be concerned about the funding levels of the government program, or are they getting their hands on some bad information that’s causing them to overreact.
The answer is, well, yes.
Social Security’s surplus is only expected to last until 2037. The nonpartisan Congressional Budget Office also reported last September that the program would be operating at a deficit in 2010 and 2011.
This data is no doubt worrisome and can jar one’s confidence in the long-term strength of Social Security. But the idea that Social Security is going bankrupt, or will be unable to pay out benefits—the internet is filled with reports that say as much—is not really accurate. Even if the program goes insolvent by 2037, it would still be able to at least pay out roughly 78% of the current benefits.
So the news isn’t as dire as some are predicting—but still. For boomers heading into retirement in the very near future, a little more piece of mind about the stability of Social Security would obviously be welcomed. Sure the payouts—or at least a good chunk of them—are still going to be there. But shoring up the programs remains an urgent need.
Charlie Farrell, a principal at Northstar Investment Advisors in Denver, spoke of this urgency during a recent interview for a forthcoming story in Financial Planning magazine. Farrell was being asked about the renewed push, including by the government, to get Americans invested in annuities.
“We already have an excellent inflation adjusted immediate annuity called Social Security and no one wants to fund it accurately,” he said. “That’s the best way to diversify our risk. It’s diversified across economies and generations of workers. We should be working to bump up that program.”
In fact, Farrell said the “bulk of mental effort” from the government should be spent on fixing Social Security. Besides properly funding it, Farrell would also like to see a “basic property right” included in Social Security that means people get out of it what they put into it.
“One of the difficulties is that it’s a great program but when you market it as wealth transfer program you undermine the legitimacy of it,” he said. “The federal government needs to be promoting Social Security in a way that makes people feel confident that it’s a fair system.”
Few Americans are likely holding their breath waiting for Congress to reach a bipartisan fix for Social Security. But here’s another reason why it’s critical that the government address its funding issues: A report from the Employee Benefit Research Institute last month found that Social Security still makes up the bulk (40%) of income for people age 65 and older.