The Hole In The Social Security Safety Net

For the first time since 1983, Social Security will pay out more money than it takes in from payroll taxes. With a down economy and high unemployment, Social Security has fewer active workers filling its coffers. And older Americans who are out of work may opt to tap into their Social Security earlier.

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NEAL CONAN, host:

This is TALK OF THE NATION. Im Neal Conan in Washington.

From time to time, alarm bells warn that Social Security could be in danger. This year, for the first time in almost three decades, Social Security will pay out more in benefits than it takes in from payroll taxes.

There are several reasons for this particular shortfall, more on that in just a moment, and there are also questions about the long-term prospects for a system that's formed the bedrock of American retirement since the New Deal.

With so many people out of work these days, fewer people pay in, and some older unemployed who might like to work until they can get full benefits take early retirement to have something coming in.

If that's your story, if you've made that decision, if you're thinking about it, give us a call. 800-989-8255 is the phone number, email talk@npr.org. You can also join the conversation on our website. Thats at npr.org. Click on TALK OF THE NATION.

Later in the program, Murray Horwitz returns with our summer movie festival. If you'd like to nominate your favorite for best movie meal, you can email us. Again, the address is talk@npr.org.

But first, Social Security, and we begin with Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare. He joins us by phone from his home in Maryland. Nice to have you with us today.

Mr. MAX RICHTMAN (Executive Vice President, National Committee to Preserve Social Security and Medicare): Thank you for inviting me.

CONAN: And is that early retirement primarily why Social Security is paying out more this year than it's taking in?

Mr. RICHTMAN: Well, there is some of that, of course, taking place with all of the unemployment, but that we're experiencing. But the payroll taxes are down because unemployment is up. Fewer people are working, being paid wages and paying into the system.

That's really the heart of the shortfall for this year and most likely for next year in terms of payments into the system and expenditures to meet obligations.

CONAN: So when unemployment gets, what, 9.5 percent or whatever it is right now, that's the fundamental problem?

Mr. RICHTMAN: I believe so. I think had unemployment been what it has been in previous years, we would not have seen any kind of a shortfall. But I think what's really important in the long run is to look at the whole picture.

And Social Security is just as sound as it was a year ago, when unemployment was lower, or a couple of years ago, because while less money is being paid in this year than is necessary to meet obligations, Social Security has a savings account, you might call it, a trust fund.

And in that fund right now, we have $2.5 trillion. That's by design. The government, our federal government in the early '80s made the decision that we needed to have a savings account for the program, a Social Security Trust Fund for the time when the baby boomers entered the program.

So that account has been building up. And despite the fact that there's a shortfall in the money taken into the program, as opposed to what's necessary to pay benefits for a year or two, that does not change the picture, the long-range big picture of the Social Security program.

CONAN: As you know, there's a lot of cynicism about this. A lot of people think that Congress raids that trust fund and spends it on other things while promising to put it back.

Mr. RICHTMAN: Well, it's you used the word promise, and it is a promise. Our government has made a solemn promise to make good on these Social Security bonds that have been issued, in return for the surpluses that have been paid in for many years. And that's a commitment that I think the federal government would be very hard-pressed to renege on.

You know, if we, if a government doesn't honor its own bonds, we're not talking about a problem just with Social Security. It's much more serious than that. We have never, ever in our history not met our obligation to pay treasury bonds. I mean, that would be disastrous, and I don't think it's going to happen.

So I think the arguments that are made that the Social Security program, and you've heard these words, it's broke, it's, there's no money there, those are really bogus arguments, I think designed by people who really aren't that interested in protecting the program to create the kind of cynicism that you mentioned.

CONAN: Well, let's get back to this, then, shorter-term problem, as you would put it, and it's almost a double whammy. Obviously, if there's high unemployment, some of that unemployment is going to be among older people, people who are eligible for Social Security but, well, they're out of work, they would like some income, and they opt to retire early to get some money coming in. Of course, that costs them down the road.

Mr. RICHTMAN: That's right, and it's really a wash. The program is designed in a way that, as many people know, if you take early retirement, at 62 as opposed to reaching a normal retirement age, which now eventually will go up to 67, you get...

CONAN: It depends on your age. It can still be 66 for some people. For some people, it will be 67.

Mr. RICHTMAN: Exactly. For me, it's 66 and four months, for example. By the year 2027, it will be 67 for everybody. But in longer terms, when someone takes early retirement and gets a reduced benefit, the cost to the program is about the same. It's a wash because they get a lower benefit.

They may start out earlier, but they get a lower benefit all along. It does not increase once you take early retirement. So in terms of the cost to the program and the impact on the solvency of the program, it's really a wash. That wouldn't make much of a difference.

CONAN: So for the system overall, you say it's a wash, though obviously those savings, if you will, come into effect a bit later.

Mr. RICHTMAN: Exactly.

CONAN: But for the people themselves, they're going to be taking a significantly lower payment at 62 than they might have gotten at 66 or 67.

Mr. RICHTMAN: Absolutely, and of course, you know, it's a gamble. You no one knows how long they're going to be collecting because no one knows how long they're going to live. And really, one of the beauties of Social Security is you cannot outlive your retirement and your Social Security benefits.

But it is you're correct. Those people who take early retirement will take a financial hit early on, and fortunately, the program is there for them in the event that they cannot find a job. They have this to rely on.

And anyone who has ever needed that kind of help, they thank God that Social Security is there, and our goal as the National Committee, as our name says, to Preserve Social Security and Medicare, is to ensure that we do our part that this program continues not just for current retirees but for our future retirees, as well.

CONAN: If you're one of those people who's made that decision to take early retirement, if you're thinking about it, give us a call, 800-989-8255. Email us, talk@npr.org.

This email from Joe(ph) in Wisconsin Rapids: The news this week was that Social Security is paying out more than it's taking in due to jobless adults retiring early. In the long run, doesn't this help the SSI bottom line because these people will be drawing at a lower rate than if they had waited? Well, I think you just answered that. You said it would basically be a wash.

Mr. RICHTMAN: Yes, I believe so. I think most people that have done the math determined that over the course of a number of decades, it really doesn't have an impact. As I've said a few minutes ago, the shortfall is largely due to high unemployment, extraordinarily high unemployment.

CONAN: As you look at the system, though, it's almost a double whammy because some people who might like to retire because they're so concerned about the situation might be working a little longer than they might have wanted to.

Mr. RICHTMAN: Well, they might, and as you know, it's not that easy for older workers to either remain in the workforce or to re-enter the workforce. So it's not something that happens automatically.

There are many people that do make an effort to continue working. And now, you know, it used to be, about, I'd say, 12, 14 years ago, if you continued working after you started collecting Social Security, you lost some of your Social Security benefits. There was a penalty.

I believe it was in 1996 or 1997 that Congress, at the urging of President Clinton, changed that. And the earnings test was eliminated. So, now if you find yourself in a situation where you're on Social Security, but you are not able to get by with that - and it's a modest amount, as you know, the average is about $13,000 a year, and it's a couple thousand less for women - you can work to supplement that, and it does not diminish your Social Security benefit.

CONAN: Let's get some callers in on the conversation, 800-989-8255. Roger's(ph) on the line from Hickory, North Carolina.

ROGER (Caller): Hi.

CONAN: Hi.

ROGER: Yes, I wanted to say I am thinking of retiring early, at 62. I'll be 61 in September, September 1st, and I'm thinking about it because I've been unemployed for a year and a half and nobody seems to want to, you know, hire people, (unintelligible) that are just getting ready to retire.

CONAN: What business were you in, Roger?

ROGER: First in furniture business in North Carolina, which of course has taken a hit. And then I went to a community college to learn cooking. And even that took - the restaurants took a hit when the economy went south. You know, so they started laying people off, too.

CONAN: And what would be the difference to you? I know you've gotten probably those letters that say if you retire at 62, your benefit will be X amount per month.

ROGER: Yeah, I know it's going to be lower, but I really don't have much choice.

CONAN: And what are you surviving on now?

ROGER: Well, my wife has a good job. So that helps. And I've been doing kind of odd jobs here and there but nothing permanent.

CONAN: So you're going to continue, I assume, looking for work for the next year, but if things remain the same, you're going to have to make that decision.

ROGER: Right.

CONAN: Well, good luck to you, Roger, thanks very much.

ROGER: Thank you.

CONAN: Bye-bye. This email from Judy(ph) in Boise, Idaho: I retired at 62 in 2002 because my job was eliminated, but I'd worked for the state of Idaho long enough to draw full retirement income. A rule of 90, age plus years of service, I was at 98. I did the arithmetic and applied for Social Security, as well, knowing that I would receive reduced benefits but that I had lived past my late 70s, I'd be ahead in total SS income. It gave me a little wiggle room, which I welcome.

So some people look at the system and say, this is going to work for me. How's it going to work for you? If you're one of those older people who's unemployed, are you considering applying for early retirement from Social Security? Have you already made that decision? If so, give us a call, 800-989-8255. Email us, talk@npr.org.

We're talking about Social Security and retirement. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. The Social Security system turns 75 this week. Analysts say the fund is hurting a bit because more people are opting to draw from it early, thanks to the unemployment crisis.

At the same time, more jobless people means less Social Security taxes collected. How much do you depend on Social Security for your retirement? And if you're one of those who have applied to Social Security early, give us a call, 800-989-8255. Send us an email. The address is talk@npr.org.

Our guest is Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare. And joining us now is Steve Vernon, president of Rest-of-Life Communications, an expert on retirement planning. He writes the column Money for Life on Moneywatch.com. Nice to have you with us today.

Mr. STEVE VERNON (President, Rest-of-Life Communications): Oh, hi, Neal, how are you today?

CONAN: I'm well, thank you, and I understand that some of those considering retiring early on Social Security - well, they're some of those people you talked to.

Mr. VERNON: Well, right, and I do acknowledge that if you're having hard times and you're not employed right now, it's tempting to draw Social Security benefits. But I urge people: Make that your last resort because Social Security is a fantastic benefit, and you want to make that benefit as large as possible.

CONAN: What's the difference if you retire early or if you hang on and get the full benefit?

Mr. VERNON: Well, let me just give you an example. Suppose you're making $75,000 per year this year, and you've always got average wage increases throughout your career. If you started your benefit at age 62, you would get about 1,500 per month. If you started it at age 66, which is your full retirement age, you'd get about $2,000 per month, and if you waited all the way till age 70, which I urge a lot of people do, you would get around 2,700 per month.

And so I think most NPR listeners would benefit by delaying taking their Social Security as long as they could.

CONAN: And this obviously is not a choice, an option, for a lot of people in the current situation. So again, last choice, you would say, but at least it's a choice.

Mr. VERNON: Well, right, and I would say, I would take any kind of work that I could get to delay my Social Security benefits. I would work at Starbucks. I would work at Wal-Mart. Anything you can do to delay taking Social Security benefits is a good thing.

The problem, Neal, is that most NPR listeners are going to live a long time.

CONAN: That's not a problem.

Mr. VERNON: Well, and you would think that's not a problem, and it shouldn't be a problem, but it will be if you're 85 and you're broke. And so most NPR listeners are going to live well into their 80s. Many will live into their 90s, and a few will make it to 100.

And so it takes a boatload of money to be retired that long, and what I tell my listeners and my readers is that anybody who, anybody who's credible and promises to pay you every month, no matter how long you live and no matter what happens in the economy, you want to make that monthly payment as big as possible. And you can do that by delaying your Social Security benefits as long as possible.

CONAN: Max Richtman, those demographics, not just NPR listeners but a lot of people. In fact, the average American is living longer. At the same time, there's that big baby-boom bulge and relatively fewer workers down at the bottom coming into the system. Isn't that the concern over the long run for Social Security?

Mr. RICHTMAN: Well, Neal, first of all, let me say, after listening to your caller, I plan on listening to NPR a lot more.

(Soundbite of laughter)

CONAN: It only counts if you contribute to your member station.

Mr. RICHTMAN: I'm sorry?

CONAN: It only counts if you contribute to your member station.

Mr. RICHTMAN: Well, I'll do that too. I do that anyway. But I will definitely listen a lot more, knowing that it's going to extend my lifespan.

CONAN: Yeah.

Mr. RICHTMAN: And another way of expressing, generally, what the caller and some of the numbers the caller mentioned, if your normal retirement age, as is mine, is 66, if you retire four years earlier, at 62, generally you will receive about 75 percent of the amount that you would receive if you waited until normal retirement.

And it is true, if you conversely, if you delay your retirement till 70, four years later than your normal retirement, you will earn about 32 percent, about a third more in your monthly check. So that's the advantage.

Now, as to the issue of people living longer, yes, they do live longer, and that's a good thing whether you're an NPR listener or not. And this system is a dynamic program. It changes over time.

It changed in the early '80s, dramatic changes. And those changes were approved in a bipartisan way by the Congress, and it extended the program, a program that was about to not have sufficient funds in a few months to send out checks to what we now have as a date of 2037.

By the way, that date has fluctuated about five years for the last over the last 12 years. So it's in that range.

People are living longer. Inevitably, Social Security will have to make some adjustments. But we're talking now about minor adjustments that have to be made, stretched out over many, many decades. So no one is surprised. No one is dramatically impacted. And that can be done.

What one of the things that we're concerned about at the Committee to Preserve Social Security and Medicare, is there's a commission established by executive order that is looking at the terrible deficit problem we have, and we'll be making recommendations after the election to the Congress on how to correct those, the budget projections.

CONAN: And I think what you're talking about is people say, look, the only way you're going to make savings, substantial savings in the long run, is entitlement programs. And that would include what they would describe, Social Security, as an entitlement.

Mr. RICHTMAN: Well, but, you know, here's the problem we have, and it's a serious issue that I hope your listeners will digest and respond to, to their members of Congress. Social Security has not created this problem. As we all know, there's a surplus in Social Security, $2.5 trillion.

For every year until this year and next year, more money has been taken into the program than paid out in benefits, and in our unified federal budget, that has allowed the government to put out a number, a deficit number that is smaller than what would actually be the case if the Social Security surplus were removed.

CONAN: Okay.

Mr. RICHTMAN: Now...

CONAN: I just...

Mr. RICHTMAN: Why look at a program as a way to solve a problem when that program did not contribute a penny to that problem? We think Social Security will over time have to make some adjustments, but that should be done in the context of the Social Security program for the sake of Social Security.

CONAN: Okay, I hear your point, and I hear you advocacy. I just want to get some more listener questions.

Mr. RICHTMAN: Okay, thank you.

CONAN: This from Lisa(ph) in Ohio by email: I took the early Social Security because of the advice of Suze Orman. She recommends everyone that can take it early should do so. I don't have to, but I did on her advice.

The Social Security office told me there was a 14-year make-up. In other words, it would take 14 years to make up the difference, so I wouldn't come out even until the age of 76. It was a gamble either way. This is, again, Lisa's interpretation of Suze Orman's advice. But Steve Vernon, what do you think of that?

Mr. VERNON: Well, I just happen to respectfully disagree with Suze Orman. Most people are going to live into their mid-'80s, and you can I would highly recommend that anybody considering retirement go to an online website calculator that would estimate your life expectancy. Livingto100.com, bluezones.com, most(ph) anybody can access those. And most people when they go there, they'll find that they have a life expectancy to their mid-'80s.

The break-even calculations that your reader is referring to shows, you know, how long do they have to live to make delaying your Social Security a smart decision. And usually those break-even ages are in your early to mid-80s. And so anybody who's going to live into their early to mid-80s is going to be better off by delaying their Social Security benefits as long as possible.

You can do that for yourself by going to an online calculator and seeing your life expectancy, and actually Social Security has a break-even calculator on their website as well. So they can actually tell you how long you have to live to make delaying your benefits a smart decision.

CONAN: Let's go next to caller Sean(ph), Sean with us from Grand Forks in North Dakota.

SEAN (Caller): Hey, how are you doing? I had a question. I help people plan out their retirement and everything, and one thing that a lot of people are always worried about is obviously running out of income in retirement.

And so one question I always like to ask, especially if people, you know, around the age of 25, you know, do you want Social Security to be included in your retirement goal? And a lot of them say no, I don't. And I say okay, so later on, if some people were to say yes, how can I tell them or, you know, give them some evidence that possibly Social Security is still going to be around for someone, you know, that's 25 years old...

CONAN: Oh, they say I don't want to calculate it in because I don't believe it's going to be there for me when I retire?

SEAN: Yeah, that's what some people say. Me, I try and calculate without having Social Security in my retirement goal because, you know, if Social Security is there for me, it's just going to be one of those nice things that I can use to, you know, go on a vacation or something, you know, because I've already planned out for other things.

CONAN: We've heard Max Richtman's responses already, but Steve Vernon, do you tell people to calculate Social Security into their retirement goals?

Mr. VERNON: Yes, I do, and the older you are, the more important Social Security is. But even if you're in your 20s and 30s, Social Security is going to be there. It's the most popular program our government has ever put out there.

And as Max said, yes, there are going to be some adjustments to be made, but I think that even people in their 20s and 30s can count on benefits that are close to what they might be promised today. There are going to be some adjustments. Maybe they'll have to retire a little bit later. Maybe the benefit might be reduced a little bit, but it's not going to go away. It's not going to be cut by 50 percent. It might be shaved down by 10 or 15 percent at most.

CONAN: All right.

Mr. RICHTMAN: Neal, if I could, I wanted to just make one comment...

CONAN: Go ahead, Max.

Mr. RICHTMAN: ...especially to those younger listeners, that I agree completely that Social Security will be there and should be taken into account. It's never been a dollar short or a day late in all these years, and it's not going to be.

But it is also there right now for younger people. A worker, 30 years old, with a spouse and two children, has right now half a million dollars in life insurance and disability insurance for themselves should something happen to them if they die young of if they become disabled. So not only is this program going to be there in the future for those people when they do retire, but it's there right now. It protects them. And that's something that is often overlooked in the discussion of the Social Security program.

You know, we've all remember seeing FICA on our check stubs. FICA stands for Federal Insurance Contribution Act. This is an insurance program for retirees, yes, but also in the event that someone becomes disabled at a younger age or dies. And there's protection there, survivor benefits. Millions of children receive Social Security benefits. And that's a piece of it that is, I think, so important and so often overlooked.

CONAN: Shawn, thanks very much for the phone call. Appreciate it.

SHAWN: Thanks.

CONAN: Email from Phil(ph) in Danbury, Connecticut. I'm seriously considering filing for early retirement. Is it possible to still work part time - I'm a substitute teacher - to augment the Social Security benefit? If so, how much can I earn? And we heard from Max Richtman earlier that, yes, you can augment your Social Security income. But, Steve Vernon, is there a cap on that?

Mr. VERNON: Well, actually, let me elaborate on that. If you're under your Social Security normal retirement age, which for most people is age 66 right now, there is an earnings threshold: 14,160 per year. So if that's the wages - if your wages are at that amount or below, there's no adjustment to your Social Security benefit.

But once your wages go up above that amount, then for every $2 of wages you earn, your Social Security benefit gets reduced by a dollar. That reduction only takes place if you retire and draw Social Security before your Social Security normal retirement age: 66. Once you're 66, that earnings test goes away, and you can earn as much as possible in wages and not have your Social Security income affected.

And so, to me, that's another reason to at least wait till your full retirement age, which is 66 for a lot of people now. At least wait till then to draw Social Security because then you can earn as much as possible and not have your benefits affected.

CONAN: We're talking about Social Security and retirement. Our guest, Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare, and you just heard from Steve Vernon, president of Rest-of-Life Communications. You're listening to TALK OF THE NATION from NPR News.

Let's go to Sandra(ph). Sandra with us from Cedar Rapids in Iowa.

SANDRA (Caller): Yes, sir.

CONAN: Go ahead, please.

SANDRA: I lost my job. In February of '09, I was working on a windmill site, and I'm aged - I'm 63 now. At that time, I was 62.

CONAN: Mm-hmm.

SANDRA: So I checked into it, and I also get a portion of an ex-husband's retirement.

CONAN: Right.

SANDRA: So I figured that was what I would get at 62, and it came out to be about the same as what I would get at age 66.7, I think, is when I could retire. So I went ahead and (unintelligible) my early retirement. And after a few months, it actually turned into Social Security disability because of an injury.

CONAN: I see. So it's working out - I'm sorry for the injury. But, is it working out well for you?

SANDRA: Yeah, it's working out great for me.

CONAN: And...

SANDRA: I mean, you know, it's not something I could live off real well with, but I can, you know, I can make my house payment and my utilities and manage to travel a little bit. So I'm not doing too bad.

CONAN: And if an opportunity - well, I don't know how disabled you are, but if an opportunity came - work came up part time, you might consider that as well?

SANDRA: Oh, yeah. Oh, yeah, definitely.

CONAN: All right, Sandra. Thank...

SANDRA: I was a long-haul truck driver for a while, but I can't go back to that. So it would have to be something where I'm not sitting down.

(Soundbite of laughter)

CONAN: Okay. There are a few of those jobs still around. So maybe the local Starbucks...

SANDRA: (Unintelligible).

CONAN: ...there in Cedar Rapids. Thanks very much. Bye-bye.

SANDRA: Thank you.

CONAN: Email from Judith(ph) in Philadelphia. As a divorced woman, I retired with 80 percent of one-half of my ex-husband's payment. My own would have been less than that, approximately a thousand dollars a month. Jeez, I was so not in demand at 62 in the job market, and, excuse me, the money that I get is worth more than being a greeter at Wal-Mart. I'm 69 now, and no one in my family has lived beyond 80. I think I made a good investment.

And, well, Steve Vernon, that's the calculation that a lot of people have to make, not the greeter at Wal-Mart part, but it is such a difficult environment for people who are unemployed and in their early 60s.

Mr. VERNON: Right. And I realize that some people can't take the advice that I'm giving because they're just unemployed and they can't make ends meet. And, you know, that's why I keep saying take Social Security as the last resort, but if you've reached that last resort, that's your only choice. So that's one situation. And then another situation is that there are people whose family history or physical health says that they might not live longer than average. And if that's the case, that would -drawing Social Security early would make more sense.

CONAN: These are difficult calculations for some people to make. It's sometimes difficult to stare those numbers into the face.

Mr. VERNON: Well, right. And I do acknowledge that it's hard to look at these numbers. But I you know, whatever your numbers are, I'd say do the planning, do the math. It will lead you to the right path for you, and everybody has got a different answer. Don't really take what your brother has done or your sister or your neighbor. What works for them might be something different. And I'd encourage everybody to do their own math, do their own calculations, make the decision that's best for them.

CONAN: Steve Vernon, thanks very much for your time today. Appreciate it.

Mr. VERNON: Oh, you're welcome.

CONAN: Steve Vernon, president of Rest-of-Life Communications, who also is the author of "Recession-Proof Your Retirement Years: Simple Retirement Planning Strategies That Work Through Thick or Thin." And we'd also like to thank Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare.

CONAN: Appreciate your time today, sir.

Mr. RICHTMAN: Thank you very much.

CONAN: Coming up next, our summer movie festival returns.

Mr. JOHN BELUSHI (Actor): (As John Blutarsky) Food fight!

CONAN: It's the best movie meal ever. If you'd like to make a nomination, give us a call: 800-989-8255. Email us: talk@npr.org. Murray Horwitz will join us in just a moment. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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