Social Security -- It Ain't Broke, So Don't Break It

Social securityAs Huffington Post reported last week, AARP is planning a "salon style" invitation-only gathering in Washington later this month. In this DailyFinance exclusive, two retirement experts propose dramatically different solutions to the Social Security crisis. Below, Dan Caplinger weighs in. Click here to read Chuck Saletta's take on the topic.

Everyone's predicting the worst for Social Security. But should the threat of cuts that are still a quarter-century away really have people in a panic today?

Apparently, some members of the AARP think so.

AARP created a big controversy last year when it appeared to open the door to a "grand bargain" that would trade current benefits for a more secure program going forward. Now, as Huffington Post reported last week, the membership organization is planning a "salon style" gathering in Washington later this month, which several proponents of cuts to Social Security will attend.

But if I were invited to that gala event, I'd suggest that a grand overhaul is overkill. A better idea is to leave the program mostly unchanged.

All that is really needed to fix the problem are some simple tweaks that would improve the program's sustainability going forward while leaving it mostly unchanged for those who receive benefits now.

Much Ado About Nothing

Now don't get me wrong. I haven't been shy about considering big changes to Social Security. Ideas like taking away Social Security benefits for the rich through means testing or letting participants have more flexibility about when and in what form they take their benefits are worth considering, at least to determine whether they'll actually have a material difference on benefits.

Moreover, the worst-case scenario admittedly sounds bad. Losing a quarter of benefits once the Social Security Trust Fund runs out in 2036 would undoubtedly be problematic for some people.

But even amid the gloom-and-doom mentality, there are some things to be optimistic about:
  • Younger workers are already planning for Social Security not to be there when they retire. Last year, a poll revealed that half of those ages 18 to 29 don't think Social Security will exist at all by the time they retire. Only 5% think it will pay the same benefit levels it does today. Past polls have shown similar skepticism among those of all ages. That realistic sentiment makes it more likely that they'll be able to handle a reduction in Social Security benefits.
  • Demographically, the crisis in Social Security won't last forever. The coming retirement of the baby boomers will be the point of maximum stress to the system. Once the less numerous generation after the boomers comes through, a more populous millennial generation will be better able to support the program. Stopgap measures to get through the tough times could be easier to accomplish than a full-scale revamp of the program.
  • Finally, despite the trend of cutting payroll taxes, small upward adjustments to tax rates or wage thresholds remain viable options at any point. Increasing revenue could resolve problems without major changes.
Compared to such minor tweaks, some of the more extreme proposals open to debate seem like a gross overreaction. For instance, as colleague Chuck Saletta notes in his piece about fixing the problem, the nation of Chile uses a format similar to the private-account idea proposed in the U.S. in the past. Similarly, the Thrift Savings Plan gives government workers a number of smart investment choices to let their retirement savings grow.

Those programs have their upsides, especially when those investment choices perform well. But the advantage of Social Security is its guaranteed payment feature -- something that most workers no longer get from traditional employer pensions or other sources. And after a decade of bad performance from the stock market, no one's going to get too excited over the prospect of gambling away their last bastion of retirement financial security.

The Answer: Stay the Course

It's natural to want to take action to save something as important as Social Security. But even in the face of what looks like a big problem, drastic measures aren't always the best. By preserving the basics of Social Security rather than scrapping it in favor of a completely different program, the government stands the best chance of an orderly transition to a more economically sustainable method of giving retirees the financial stability they so badly need.

Click here to read Chuck Saletta's take on the topic.

Apps to Make You Smarter With Money
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Social Security -- It Ain't Broke, So Don't Break It

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