Fellow Forbes contributor Kate Ashford wrote an article on Friday, “How To Plan (Or Not Plan) For Social Security In Retirement,” that confirms what most of us already sense: there’s no easy way to figure out how to incorporate Social Security into our retirement plans when there is no certainty around the system’s future.
She cites financial planners who advise their clients to assume that Social Security benefits will be two-thirds, or even only as much as one-quarter, of today’s benefits, or who don’t even build Social Security benefits into the client’s retirement plan at all, treating it as bonus income, should it materialize.
I’ve previously written that my preferred Social Security reform plan is a phase-in of a flat benefit paired with mandatory annuitized retirement accounts, a plan similar to what the United Kingdom is actually phasing in at the present, which is, in fact, a shift from a system that had been very similar to the American system. I’ve also written that, much as I’d prefer reform, the most likely outcome of the depletion of the Trust Fund will simply be a legislative fix in 2034, or whatever year this event comes to pass, enabling Social Security benefits to be paid out of general revenues rather than solely out of FICA taxes.
But Ashford’s article is striking to me because it highlights the fact that there is real harm being done in that we have an entire generation of workers unable to meaningfully identify savings targets, even if they wished to, because of the uncertainty around Social Security. And it’s not just a simple matter of the upper middle class planning for a Social Security-less future because they can afford to be cautious. As of 2015, 64% of 18- to 29-year-olds, and 63% of 30- to 49-year-olds, believed that they would not collect a Social Security benefit, according to Gallup.
Does this poll reflect the percentage of Americans who believe that Social Security will wholly disappear? Likely not – the poll gives two answer choices, “yes” or “no”, rather than a more common polling format of specifying the degree of confidence one has, so that the “no” could be taken as a general expression of worry. The question also asked specifically whether the individual thought the Social Security system “will be able to pay you a benefit” (emphasis mine), so some of the “no” responses might well come from people expecting that the system would still exist but be means-tested and they wouldn’t be poor enough to qualify.
To be sure, experts have always pooh-poohed all such concerns as foolish, and have insisted that all we need is a bit of tinkering here and there; some even say that the worries people have about Social Security are entirely the fault of Republicans who, in their narrative, sowed doubts in order to build support for individual account proposals.
But these uncertainties about Social Security have consequences.
Ashford reports on recommendations to plan as if Social Security doesn’t exist, but given the reports that younger Americans are far from saving at rates appropriate to fund their retirement needs in full themselves, there’s no reason to think this is happening on a large scale. What seems more likely to me is that rather than boosting motivation to save, the uncertainty around Social Security is sapping motivation, because if it makes the very idea of identifying a savings target too unknowable a venture, and the more unknowable the savings target or savings rate is, the more difficult it is to see this as a real, tangible, achievable goal. And the less tangible and achievable that goal seems, the more difficulty it’ll have competing with other spending and savings objectives.
Which means that, however clever I might consider myself to be for saying, “Eh, Congress will just pass a ‘Social Security fix’ when the time comes,” there is a real harm done to individuals, and to our retirement system more broadly speaking, when Congress creates this uncertainty by collectively declaring the issue non-urgent and deferring action.
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