Fixing Social Security: A Solvable Problem

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Our weeklong series on All Things Considered began on June 1 and includes:

  • An examination of the 401(k) model
  • Conversations with people in their 40s, 50s and 60s about their retirement plans
  • An expert who will respond to reader questions
  • A look at the state of Social Security
  • A snapshot of what retirement looks like for people in rural communities

Retirement is a long way off for Jake Gerrein, but that hasn't stopped the 17-year-old from thinking about it.

Gerrein, who lives in St. Louis, worries that when his turn comes to stop working in 50 years or so, Social Security might not be around to help pay the bills.

"By the time I retired, it would be completely gone," Gerrein says. "I mean, with the baby boomers and everything."

So Gerrein took his concern right to the top. When President Obama visited his suburban St. Louis high school this spring for a town hall-style meeting, the junior class vice president was ready with a question.

"I was just curious to what policies you're going to put in place to protect Social Security for the upcoming generations?" Gerrein asked.

"It's a good question," Obama replied.

For years, Social Security has been a vexing question for politicians. Former House Speaker Tip O'Neill (D-MA) famously called it the "third rail."

But Obama said fixing Social Security is actually one of his smaller challenges.

"There are some problems that are really hard to solve," he said. "This is one we actually can solve."

Full Benefits Through 2037

The problem is at least straightforward. More and more baby boomers are retiring. And they're living — and collecting benefits — longer. Forecasters say in about seven years, Social Security will start paying out more in benefits to retirees than it's collecting in taxes from workers. At that point, the system will start drawing on its trust fund.

That means the rest of the government, which has been, in effect, borrowing from the fund, will have to start paying it back. But there's enough money in the fund, at least on paper, to keep paying full benefits through about 2037.

Only when that runs out will future retirees — like Gerrein — run the risk of seeing their benefits cut. In the worst-case scenario, the cuts would average about 25 percent. A cut that size, almost 30 years in the future, might not seem like an urgent problem. But the longer the government waits to fix Social Security, the harder it will be.

"We have time to make sure that we come together to make the kind of changes necessary to achieve that objective," Treasury Secretary Timothy Geithner said last month, when the Social Security Trustees Report was released. "But we don't have [an] infinite amount of time."

Geithner said the Obama Administration is committed to tackling Social Security, but only after it's finished revamping the health care system.

Sen. Lindsey Graham (R-SC) wonders, why wait?

"I understand that health care is important. I don't disagree with that. But if you could solve the Social Security problem, it would create momentum to solve other problems," Graham said.

Graham has been outspoken in his offers to help with Social Security. He's convinced that if the White House gave the go-ahead, a bipartisan solution could be worked out this year.

Ideas For Fixing Social Security

There are any number of ways to fix Social Security, but they boil down to these: charge workers a little more in taxes, pay retirees a little less in benefits — or some combination of the two. Obama's preferred solution is to extend Social Security taxes to higher incomes. As he explained during the town hall meeting, workers who currently make more than $107,000 don't pay Social Security taxes on the excess.

"For almost everybody here, what that means is you pay payroll tax on every dime that you earn," Obama said during his visit to Gerrein's school. "But if you're Bill Gates, that means you're only paying payroll tax on one-tenth of one-percent of what you earn, because you earn so much more."

Other proposals include reducing benefits for wealthy retirees, raising the retirement age, and encouraging new forms of savings. Graham argues that those ideas should be on the table along with Obama's.

"I'm open-minded about lifting the cap. But you've got to be open-minded about it all," Graham said.

Graham said he's willing to meet the president "more than half way," and he believes he could bring at least 10 fellow Republicans along with him.

Gerrein said his conversation with the president left him more confident about his own retirement, five decades in the future.

"Anything they're going to do is going to benefit it," he said. "Well, almost anything."

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