While Washington rushes to reduce benefits in the name of a nonexistent crisis, the overwhelming reality is that Social Security is becoming more, not less, essential for most Americans. Any changes should be with the goal of strengthening it, not reducing benefits.
Journalists covering the debate seem to have forgotten the essential context. Social Security, after all, is an extraordinary public policy achievement that provides economic security for millions of older Americans. Social Security is the major reason that poverty among those 65 and older has been reduced from 30% to under 10% since 1960. Without Social Security benefits, the percentage of older Americans below the poverty level would now exceed 40%. Over 70% of all retirees depend on Social Security for most of their income. Social Security is the essential pillar of the U.S. system of retirement security.
It is also rapidly becoming even more essential, not less, due to the erosion of the private retirement security system. Defined benefit private pensions have disappeared for most workers and been replaced by poorly funded defined contribution plans (401(k), IRA). Many of the remaining defined benefit plans in both the private and public sectors are underfunded. Most working families have meager savings caused by stagnant or declining incomes and the increasing costs of education, housing and health care. The wage replacement value of Social Security is already expected to decline from 40% to under 30% by 2030 due to increasing taxes and health care costs. These trends will increase the percentage of baby boomer retirees unable to maintain between 70 and 80% of their last wage while working. Over 50% of older boomers and over two thirds of those born between 1960 and 1964 will not be able to achieve that benchmark, which is generally considered necessary to maintain an adequate standard of living in retirement.
At this point, it looks as if most future retirees will be more dependent on Social Security than their parents for their economic security in retirement. This means that the preservation and strengthening of the program should be the central focus of efforts to ensure retirement security for decades to come.
The Social Security Trust Fund currently has a surplus of $2.6 trillion, which is sufficient to keep the program fully solvent until 2037. After 2037, the money flowing into the Trust Fund through the payroll tax will be enough to pay beneficiaries about 75% of benefits currently promised in law. Social Security is not facing an immediate funding crisis; only modest changes are needed to ensure the program’s long term capacity to pay promised benefits
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