Social Security

Cutting Social Security  benefits🤑

There is no one I can find who actually proposes cutting Social Security or even making prospective changes for anyone close to retirement. 

Changing a formula so that future benefits are lower than they would have been otherwise is not cutting benefits. So, if you thought you were getting a four percent raise, but you only received 3%, did you take a cut in pay? 

Nevertheless, the facts never get into the way of politician claims to the contrary. However, even in the case of Social Security there is precedent for cutting benefits prospectively. Why, because the Trustees saw a coming financial problem that needed to be corrected. Note below that forty-years ago the demographic problem was identified. That is also part of the problem today. 

Today our politicians do not have the integrity to tell people the truth or to seek solutions that require changes affecting all workers and beneficiaries. Rather, they mislead and seek fixes that only raise taxes on a few. 

In 1973, the Social Security Board of Trustees began to project financial problems for the system in both the near and long term. The financing problem grew worse throughout the mid-seventies.

The near-term problem was caused primarily by adverse economic conditions. Much higher-than-expected inflation caused benefit levels to soar, and aggregate expenditures to do likewise, while lower growth in real wages and higher unemployment caused revenues to grow more slowly.

The long-term problem was caused in part by less favorable demographic trends. For example, based on new population data, the long-term fertility rate assumption was lowered. This reduced the projected number of workers who would contribute to the system in the next century. However, the largest part of the looming deficit (it was estimated in 1977 that costs would outstrip revenues by 75% over the next 75 years) was caused by changes in the underlying assumptions about future economic conditions. Under the 1972 law, future benefit levels were highly dependent upon the future relationship of wage and price growth. As a result, future benefits could be lower or higher than intended, and the prevailing view in the mid-1970s was that they would be much higher than anticipated. In fact, it was projected that if the benefit computation rules were left unchanged, benefits for many individuals retiring in the future would exceed their earnings before retirement.

The 1977 amendments were enacted primarily to alleviate these financing problems. The amendments increased future revenues by raising tax rates and the earnings base, but more significantly, they changed the benefit formula that was raising initial benefits too rapidly. For individuals becoming eligible after 1978, benefits were to be determined by a formula designed to give a stable relationship between one’s benefit and preretirement career earnings. This would be accomplished by indexing both the formula for determining initial benefits and a person’s earnings to reflect changing wage levels. The change in the computation rules was called “decoupling.” These actions improved the forecasts of the financial condition of the program significantly. At the time of enactment, the Social Security actuaries projected that the OASDI trust funds would be solvent for the next 50 years, although by a small margin in the late 1970s and early 1980s.


4 replies »

  1. If the clowns in D.C ever fix Social Security funding shortfall, they would lose a political cause they can use against the other side to convince idiots to vote for them. That is why it will never be fixed and fully funded. They will raise the full retirement age slowly over the next 20 years, may even lift the cap and tax all income. That is about all I can see them doing. Any shortage in money to pay benefits will just be put on the national credit card.


  2. Richard, these problems were identified in 1944 well before anyone knew about any demographic issue.

    AJ Altmeyer testified in Congress… “There is no question that the benefits promised under the present Federal old-age and survivors insurance system will cost far more than the 2 percent of payrolls now being collected.”

    You can’t sell dollars for dimes.


  3. Blah, blah, blah.

    Blame the lack of timely social security reform on Monica and the blue dress – which became national news in January 1998.

    Most American’s forget that the need for Social Security reform and funding, the shortcomings of the 1983 changes, was apparent to anyone who was paying attention.

    It was part of the national conversation in the 1990’s and thereafter – see, for example:
    – Advisory Council on Social Security, January 1997
    – President’s Commission to Strengthen Social Security, July 2001

    However, we have seen no action since the Social Security Amendments Act of 1983.

    Long ago, people started recommending solutions. Here is the Business Roundtable’s take from January 2013 “… any reforms should include the following elements:
    • Protect Retirees and Those Approaching Retirement: Initial benefits of those age 55 or older today should be protected.
    • Increase Retirement Age: The Social Security retirement age should be raised from age 67 to age 70. The unique needs of individuals in physically demanding occupations should be accommodated and the Social Security Disability Insurance Program should be modernized.
    • Change Benefit Formulas to Increase Progressivity: Benefit growth should be restricted
    through gradually phased-in adjustments in the calculation of future Social Security benefits. These adjustments should increase progressivity by adding a new minimum benefit that ensures that the benefits of a full-career worker would be above the poverty line and means-testing benefits eligibility for individuals with high income.
    • Update Method for Calculating Cost of Living Adjustments (COLAs): Future Social
    Security benefit COLAs should be based on the more accurate Chained Consumer Price Index (CCPI-U), which takes into account the changes that people make in the composition of purchases in response to price changes and is seen as a more accurate cost-of-living indicator.
    • Include Newly Hired State and Local Workers in Social Security: Employees currently
    exempt from Social Security coverage should be brought into the Social Security system. …”

    But, like the 1983 changes, implementing any of the proposed “solutions” will likely just dump us back into discussing the next round of “solutions” 10, 20 or 30 or more years from now.

    Those serious about creating an indefinite solution aren’t going to come up with a bunch of changes based on what we know today, but will put in place an annually self-adjusting, dynamic pricing system that will solve the challenge, today, tomorrow, indefinitely:
    – Individual choice on available options for filling the funding gap,
    – No benefit improvements beyond current provisions, without a super majority vote of social security taxpayers (not voters, not social security beneficiaries),
    – A legally binding contract between Social Security and its taxpayers/beneficiaries, to provide a minimum benefit to survivors/decedents equal to each individual’s employee contributions less any benefits actually received.

    That is my proposed solution. It is based on 35+ years of experience in corporate employee benefits – where we effectively and successfully used choice to enable individual employees to prioritize and make difficult decisions and trade offs.

    The basic rule of thumb is that individuals will more willingly accept difficult decisions where they have a say … where they get to choose the method of closing the gap, where they get to choose their own poison on how to close the funding gap.

    The largest shortcoming of the proposed solutions identified in the past (and above) is that others decide … and you end up with endless lobbying about “fairness”. We heard this in the run up to health reform … and the sentiment I heard from individuals was clear: “I want the best health care coverage YOUR money will buy”. Former Senator Long once described this as: “Don’t tax you and don’t tax me, tax that guy behind the tree.” It starts with exempting anyone age 50 or older … and where it ends depends on an interest group’s political clout.

    Before we put in some new “static” solution, let’s get serious about ending the debate, once and forever.


  4. While I hear the rumors of ‘social security is going broke’ or ‘they’re trying to cut social security’, I always just considered those rumors as, well, rumors. Too many Americans are counting on Social Security as their sole retirement fund. Your post and the excerpt it contains certainly educated me and confirms the truth to the warning that we should not depend on Social Security alone to fund our golden years. Doing so will lead us into a retirement that is below poverty level.


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