Social Security Is Nearing A Crisis

Washington seems determined to ignore the country’s rapidly worsening fiscal picture, but sooner or later policymakers will be forced to pay attention. When they do, they’ll find that changes to Social Security are unavoidable.

No doubt, any such effort will meet strong political resistance. That’s why nothing has been done for 40 years and counting. The best approach — on the merits and as a matter of political feasibility — would combine entitlement reform with fresh thinking about financial security in retirement.

Thanks to relentless pressure from an aging population, Social Security is expected to exhaust its financial reserves in 2033. At that point, without offsetting action, benefits will automatically be cut by a quarter.

The program’s last big overhaul, in 1983, scheduled a gradual rise in the normal retirement age from 65 to the current 67. Life expectancy will increase further over the coming decades, and longer retirements will continue to raise costs. Indexing the normal retirement age to longevity (meaning a constant ratio of years in retirement to years in work) would imply a normal retirement age of 69 by 2075. This would close about 40% of the long-term fiscal shortfall. The rest could come from higher revenue — for example, through raising the income cap on payroll tax above the current $160,200.

Social Insecurity