Earlier this week, I wrote about how raising the retirement age for Social Security would mean cutting benefits. A number of people left comments and contacted me directly with points they wanted to raise. Some additional explanations might be helpful.
First, a quick recap of the effect of raising the retirement age:
- Social Security payments are designed to hit 100% of what a recipient is owed at what is called the full retirement age (FRA). That depends on the person’s birthdate.
- The recipient can begin taking payments as early as age 62. The amount is reduced by every additional month you start payments in advance of the FRA.
- At FRA, the recipient gets 100% of the expected amount.
- Delay taking Social Security and the amount increases every month through a complicated formula until the recipient starts to take it. Age 70 is the last point at which the amount can grow. Afterwards, the amount doesn’t change, other than through a cost-of-living increase.
If the government increases the definition of the FRA, it’s as if all the payments get shifted, losing value. Make the FRA 68 instead of the current 67 and that’s a roughly 7% decrease. Make the FRA age 70s and you lose 23% of benefits.
Blame congressional payrolls and retirement benefits
More than one person pointed to how Congress is treated, and it’s a fair comment. But the amount they get in total is tiny in comparison to the sums paid by Social Security. Wiping out any payments to Congress — which does use a different retirement benefit system, probably out of the concern that otherwise too many would vote for changes based on how they’d be personally affected — isn’t going to do much.
Money is being wasted on frivolous uses and benefits for undocumented aliens
Doe the government waste money? Certainly. Virtually everyone and ever institution does. Some is flagrant, some is from mistakes. But the really big sums come from a smaller number of decisions.
During the pandemic, Congress authorized $5 trillion in pandemic stimulus money, according to the New York Times. There was some fraud and some ineptitude in getting money out where it was needed. But overall, given the uncertainty about the danger of the virus, it was a worthwhile gamble that meant the economy pulled out of a recession within a few months, which was unheard of. By pushing the aid, millions didn’t sink into a mudhole of personal finance. Going small on aid likely would have stoked a bigger disaster.
Compare that to the Tax and Job Cuts Act of 2017. As The Balance explained, the tax benefits accrued to corporations and wealthy Americans while not delivering the claimed more or better paying jobs. The total cost, if tax benefits were made permanent, would have made the cost $2.3 trillion instead of the $1.5 trillion that was supposed to, but didn’t, generate enough revenue to make up for it. If looking for waste, then realize not all large expenditures were foolish but some were considerably more wasteful than others.
As for non-citizens getting Social Security, that’s only if they are legal residents who meet all the eligibility requirements, including having paid into the system for a long enough period of time.
Federal government borrowed from Social Security
Yes, the federal government has borrowed from Social Security, but only through the purchase of special financial instruments, all of which by law have to pay interest and then eventually the principal.
It’s similar in a way to how life insurance companies work. They put money from premiums into a mix of investments that pay interest and eventually the principal in time for anticipated payments of policy payments. So, it does get paid back over time.
The problem is that the borrowing was from Social Security surpluses and for many years interest rates were extremely low, so there was less buildup of reserves. Baby boomers are a large demographic now retiring. They are living longer than previous generations without enough younger people paying into the system to fund the payments in an ongoing manner.