Saving Social Security

Republican presidential hopeful Fred Thompson appeared on today’s “Fox News Sunday” to say that his plan for saving Social Security is to cut the benefits.  Mr.  Thompson has not actually said how much the benefits would be cut.   The typical monthly benefit for 2008 is $1,044.  The median savings of Americans age 51 to 62 is $63,116.  There have been discussions on the radio about the fact that 80% of the population has savings of less than $50,000.  Just how much cut in Social Security payments can the average retired family handle?  My opinion is NONE. Clearly most retired people need the monthly retirement income they receive from Social Security.  The Economic Policy Institute (EPI) published “Retirement Income The Crucial Role of Social Security in May 2005  <http://www.epinet.org/content.cfm/book_retirement_income&gt;. Key conclusions were:
In examining Social Security benefits within the context of other retirement savings programs, the data show a number of striking results:

• For the typical person approaching retirement, the value of expected future Social Security retirement benefits represents the largest single source of wealth. That finding is consistent with the well-known fact that Social Security provides more than half of all income for about two-thirds of people over age 65.
• Social Security provided a larger addition to wealth than any other form of wealth between 1989 and 2001 for the average person near retirement. As labor markets tightened and annual earnings improved over that period, the expected value of Social Security benefits rose. Although stock market and home prices rose significantly over that timeframe, these increases had only a modest effect on the wealth of those in the middle of the income spectrum; their stock market holdings were too low to be affected, and increased borrowing kept home equity in check.
• In terms of the adequacy of workers’ retirement savings, the data indicate that the retirement system outside of Social Security is a system with many holes. Despite large tax incentives from the federal government for workers to save for retirement, more than one-fifth of households nearing retirement (those between the ages of 56 and 64) had no retirement savings other than Social Security. In contrast, nearly everyone can expect to receive some benefits from Social Security.
• Even among the households that have private pensions, savings are very unevenly distributed. Indeed, one of the most dramatic transformations over the last two decades has been the replacement of traditional Defined Benefit (DB) pension plans with Defined Contribution (DC) plans such as 401(k)s. This shift has actually been detrimental to a large share of the working population. Despite increased coverage by DC plans and the rise in the stock market, the total DB plus DC wealth of the typical person nearing retirement was no higher in 2001 than in 1983.
• Retirement savings, including Social Security wealth, notably improved from 1989 to 2001, although large trouble spots remain. The share of households that could expect to have retirement income of less than twice the poverty line declined. Also, the share of households that could hope to replace at least half of their current income with benefits from their savings in retirement rose from 1989 to 2001.
• There is significant inequality in the retirement preparedness of different demographic groups. Minorities and single-female-headed households saw larger than average improvements in retirement preparedness, although they remained less well prepared than other groups. Much of this inequality results from an uneven distribution of retirement savings outside of Social Security, while expected Social Security benefits are an equalizing force. The tight labor market was particularly helpful in raising the annual earnings and future Social Security benefits of these groups. In addition, these groups depend more heavily on Social Security for their retirement income than do other groups.

The many ways in which Social Security has proven superior to private retirement benefits should give pause to those who want to carve up Social Security through privatization. Social Security is universal, and its value has risen faster than other forms of retirement savings for the vulnerable households that need additional retirement benefits the most.

The Republican obsession with not raising the Social Security cap of $97,500 is remarkably out of touch with reality.  Even conservative Alan Greenspan, former Federal Reserve Chairman, has said that the fix for Social Security is to raise the cap. In 2006, the median annual household income according to the US Census Bureau was determined to be $48,201.00.  Clearly $97,500 is well above that average.