Automatic adjustments to Social Security

The following is pure common sense.

Unfortunately, it is up against political incompetence. Social Security is an absolute necessity for Americans and anyone who wants to eliminate it or cut benefits is a fool.

As the following notes, keeping it sustainable needs to be automatic- even if it means – and it will, higher taxes along the way.

When the horse-trading begins on a package to restore financial balance to the Social Security program, one item that should be considered is some form of automatic adjustment mechanism. While the financial implications of the ultimate package will be based on the best assumptions regarding wages, prices, and demographics at the time, these assumptions may not pan out, and the system might once again be heading for deficits. And U.S. policymakers are terrible at addressing Social Security’s financial problems before we are about to fall off a cliff.

The last major piece of Social Security legislation was enacted in 1983 – exactly forty years ago. At that time, the program was within months of being unable to pay full benefits. Today, we face the prospect of a 23-percent benefit cut in 2033 when the assets in the Old Age and Survivors Insurance (OASI) trust fund are depleted.

Policymakers have known for decades that the OASI trust fund would be exhausted in the 2030s (see Figure 1) but have taken no action. Not acting has costs. It undermines Americans’ confidence in the backbone of our retirement system and causes some to claim their benefits early, hoping that those on the rolls may be spared future cuts. More importantly, delaying action means the eventual changes must be more abrupt, and fewer generations participate in the fix.

Center for Retirement Research Boston College Alicia H. Munnell is a columnist for MarketWatchand director of the Center for Retirement Research at Boston College.