Social security is a promise that we must keep to retirees and those getting ready to retire. Unfortunately, Social Security is facing insolvency again unless Congress acts soon. We must find a fair way to ensure that benefits will be there for future generations.
There are two primary reasons that social security reform has been such an important issue. The first is the anticipated retirement of millions of baby boomers. This will critically change the worker to retiree ratio. In 1937, when social security was enacted, the ration was 60 workers to every one retiree. By 1950, it was 16 to 1. Today it's 3.3 to 1 and will soon fall to 2 to 1. Secondly life expectancy has increased from 59 years in 1937 to 77 years today. The result is that starting in 2018 more money will be paid out than into the system. By 2041, unless benefits are cut by 27%, the system will go broke.
In addition to insolvency, there is a question of generational fairness. If you retired in 1980, you got all your money back in 2.8 years, but if you retired in 2003, it will take 17 years! As time goes by, this gets worse because younger workers have paid in at a higher tax rates than older ones.
The generational fairness issue is more difficult to resolve then the solvency issue, but directly related. To address solvency issues in the past, we have raised taxes (20 times since 1937). We have also cut benefits (in 1983 the retirement age was raised to 67). Many believe we should do this again and there are several proposals that include these options.
Realizing that raising taxes or cutting benefits is difficult, I've supported voluntary personal accounts. These accountants would operate like the "Thrift Savings Plan", which all members of Congress and federal government employees have. The accounts would be professionally managed with employees choosing between 5 different investment options. Employees who chose to participate could not draw their money out until they retire. The return on the Thrift Savings Plan has been between 6.9% and 11% in the last 10 years where social security returns for today's workers is less than 1%.
Congress has failed to act on this important issue and the result could be disastrous. I strongly support a bi-partisan approach to reforming Social Security because the problem affects all of us. Simply voicing opposition and denying there is a problem is not leadership. We need all sides to sit at the table and to step forward with a plan so we can carefully craft a solution that fits all Americans.
I will continue to look at all proposals and hope that you'll share your thoughts with me. To do so, click here or call one of my offices.