Seniors mull pros, cons of Social Security reform

AARP sponsors program to inform members

tgoldsmith@newsobserver.comNovember 23, 2012 

  • Social Security reform options •  Raising the full retirement age Pro: Already in progress (from 65 to 67); expanding this approach makes sense because people are living longer and will earn an increasingly higher share of benefits in retirement. Con: Cuts overall benefits, especially for low-income people who aren’t seeing as much of an increase in longevity. •  Changing the cost of living adjustment (COLA) Pro: Would save money by creating a more accurate measure of the way older people spend. Con: Would reduce payments unfairly. A better approach would be to include the health care costs that tend to cost a larger share of older people’s living expenses. •  Eliminate the payroll tax cap, which now requires no Social Security payments for portions of income above $110,100 annually. Pro: Would make system more fair and almost eliminate the trust fund’s projected shortfall. Con: Would create a huge tax increase for higher earners and raise the maximum payout to an unsustainable level. National Academy of Social Insurance, Heritage Foundation

Older people in North Carolina and across the nation are watching closely as Social Security and other programs are put on the table as part of government budget negotiations.

From the towering costs of federal entitlement programs to the relatively minuscule tab for caregiver respite in North Carolina, everything will be subject to the push and pull of revenue versus spending, according to state and national experts.

In a notable example, Social Security has become an increasingly tricky problem as a traditionally conservative older generation faces the projected draining of the program’s trust fund by 2033, potentially reducing benefits by 25 percent after that date. In North Carolina, nearly 1.2 million people older than 65 receive Social Security, which makes up about two-thirds of the average recipient’s income.

The nonpartisan advocacy group AARP, both at the state and national levels, is walking a fine line on the issue. The organization has been sponsoring programs with the theme “You’ve Earned a Say,” both to inform members about proposals for saving Social Security and to gather opinions about it.

At a presentation at the Gerontological Society of America conference in California, Cheryl Matthias said the group isn’t backing away from its support of traditional Social Security, but wants to make sure there’s a thorough discussion as the entitlement goes through the budget-making sausage-grinder. Proposals range from privatizing the program to raising the upper income level at which earners pay into Social Security.

“It’s not going to be any one of these proposals,” Matthias said. “It’s going to be a combination and probably some we haven’t thought of.”

Social Security is part of the ongoing “fiscal cliff” negotiations in Congress, but will also need a longer-term fix to preserve its benefits for future generations. The same is true of Medicare, the federal health insurance program for people over 65, which presents an even larger problem.

Changes inevitable

The Heritage Foundation’s David John spoke at a Triangle “You’ve Earned a Say” on Social Security event earlier this year, noting that a 25 percent benefit cut for Social Security recipients is forecast for 2033.

“The longer we wait, the harder decisions we have to make about it,” John said.

N.C. State University economist Michael Walden said the proposals for change generally involve an additional increase in the retirement age, a change in the way that cost-of-living increases are calculated and a possible increase in the income level at which recipients no longer pay Social Security taxes.

However, Walden said, “Some want to scrap Social Security altogether.”

John said people approaching retirement should look not just at Social Security but also at savings, pensions and 401(k), and similar resources. Later retirement ages just reflect the realities of longer life spans, he said.

“It’s time now to reassess this,” he said. “It’s not a matter of comparing the Social Security benefits of today with the benefits of 1983.”

Robert Clark, an N.C. State professor of management and chair of the state’s Future of Retirement Task Force, said it’s important to remember that the proposals under consideration will affect future recipients, not those in or near retirement.

“Benefits are going to be cut some; we don’t know how much,” Clark said. “Taxes are likely to go up some; we don’t know how much. So individuals will have more responsibility for their retirement even as their income is less.”

However, future recipients will continue to receive increases, just under a different formula, Clark said.

Changes concern 50 and older

Older people in North Carolina share the concerns expressed nationally about finding a way to preserve retirement security for generations to come, said AARP state lobbyist Mary Bethel.

“We’re really concerned about retirement security for people 50 and older,” Bethel said. “A lot of people have lost money in the stock market, and they are realizing they can’t retire on what they have.”

The group at or approaching the level called the “oldest old,” 85 or above, has a unique historic perspective, Bethel said, and it’s typically less self-involved than stereotypes might reflect.

“It’s easy to say that seniors want theirs, the heck with anybody else,” she said. “I think that a lot of people who are older lived through the Depression, and that has really shaped their experience. They know the importance of our country’s being on sound financial footing.

“At the same time, they realize that if people didn’t have this Social Security and Medicare, life would be a real challenge.”

Goldsmith: 919-829-8929

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