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"Politics is the art of postponing decisions until they are no longer relevant."
Henri Queuille
For financial advisors with older clients, the unanimity on Social Security found at the State of the Union will only fuel gridlock on reforming the troubled program. While politicians repeatedly say that they will not consider cutting Social Security benefits for those currently collecting, it is a fool's errand to believe them.
There is no way to keep the promises to those currently collecting without breaking them to someone else. Worse, there is only one fact on which all experts agree: The longer we wait the harder it gets.
To illustrate, Senator Joe Manchin (D-W.Va.) has suggested that Congress may have to look at whether there is a “better program” than Social Security for future generations. He doesn’t know of one. But he is sure of one thing. He is not willing to discuss cutting Social Security and Medicare for those people who are receiving and have been depending on it, who have worked hard and earned it.
In other words, the senator is willing to talk about cutting Social Security for those people who will be receiving and will be even more dependent upon the program, who have worked longer and contributed more to it. For these people, Manchin believes that there might be a better program, one that falls short of what Social Security currently provides.
The obvious question is: How is less better, and for whom is it better?
Manchin offered a prerequisite for Social Security reform: He will not discuss benefit cuts for current retirees. This is the politics of the status quo. We create an unattainable goal as the threshold to consensus. It is a guarantee that the nation will do nothing until the insolvency of Social Security dictates the terms of how we reduce benefits for everyone.
To illustrate the art of doing nothing, there is internet chatter about gradually raising the retirement age to 70 because Americans are living longer. There is no legislation, but Washington policymakers are rumored to be exploring the possibility.
In the past “gradually" meant that the law would increase retirement age one year every two decades. Now, “gradually” means that it would increase one year every four years.
The policy would mean that someone turning 51 (born 1972) would have had their retirement age increased by five years over their working career, while their life expectancy at 65 had only increased slightly more than three years over that time. By increasing the retirement age to 70, Congress would reset the length of retirement back to the levels of the 1980s.
As unappealing as that possibility might sound, it only solves 45% of the projected problem, and roughly equates to a 20% reduction in benefits. Let’s assume Congress has to double that efficacy to reach a balance. The rumor implies that Congress might have to subject those in their 50s to 40% reductions to benefits, and significant cuts would drift to people in their 60s.
The politics of the status quo creates the illusion of action, fostering the image that Social Security is a hot topic that has captured the attention of Washington. Yet, raising the retirement age to 70 is no more serious as a solution for Social Security than hiring leprechauns to look for pots of gold at the end of the rainbow.
And the band plays on.
The politics of the status quo is based on the idea that seniors vote and want to keep the 100% of their benefits this month and to hell with benefits further out. That voting block dwindles every year and the voting block of people for whom Social Security is just another tax grows.
At this point, someone who is turning 76 expects to outlive the system’s ability to pay scheduled benefits. The person turning 62 this year expects to spend roughly half of his or her retirement seeking to fill-in the gaps created by insolvency. The person who turns 55 expects to never get a full benefit check.
It is a fool’s errand to think that our politicians will be able to convince voters in their 50s to take a 40% reduction to benefits so that current retirees do not face any cutback.
It is a fool’s errand to think that these dynamics will ever improve. Wait a year, and the 40% figure increases. Wait another, and the reduction to protect current seniors will rise again. It is going to increase every year until the politicians are awoken by voters angered by the picture of depleted future benefits.
Until then, Congress is just the band.
Brenton Smith writes on the issue of Social Security reform with work appearing in Barron's, Forbes, MarketWatch, TheHill, USAToday, and more. He can be reached at [email protected].
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
