Kerry Hannon is a futurist – a leading futurist no less. She lives and writes in the present time, however, as a proxy of the gap between what experts think the problem in Social Security is and what the numbers actually mean for the rest of us.
In her Yahoo column on finance, she observed, “Retirement savers are willing to put in more — literally — to keep Social Security afloat. Nearly 6 in 10 people under 55 said they would work two years or more to keep Social Security funded.”
It is not surprising that people under 55 said that they would work 2 more years to keep Social Security solvent. What is surprising is that anyone thinks that such a trivial contribution would make a meaningful dent in the program’s financial troubles.
Here is the survey from the Bank of America Research Investment Committee. Here is the question: If it would keep Social Security funded for your retirement, would you be willing to work an extra 2 years?
As it happens, the Social Security Administration provides some guidance into the question with stored policy scoring analysis. In this case, Congress could increase the retirement age by 3 months per year, starting with people turning 62 this year until the retirement age reaches 69. Thus, someone who is 55 today would be able to retire at 69 instead of 67.
This change is draconian compared to the public’s perception which has been configured by Washington to modest and gradual benefit cuts. Back in 1983, the word gradual meant that we would increase the retirement age by 2 years over 45 years. In this context, the word gradual implies a change that moves more than 5 times faster.
How much does this change solve? If implemented at the start of the year, it would have solved a projected 28% of the overall problem. As unimpressive as the results might sound, the fact is that most of the savings are back loaded so it takes a very long time to reach full effect. It does not change the projected solvency date by a week, and it still leaves Congress looking for cash in 2035 to avoid benefit cuts of 20% or more.
The change does not reach average effect until after 2050. So, we are in effect simply agreeing with ourselves that our children will get less from Social Security than we take. The problem with adjusting the age of retirement is that it is very ineffective in the short-run.
According to the research, just 8% of those aged 35-44 plan to retire by 67. Clearly these workers have yet to experience job losses that are affecting people 50+. Propublica reports that more than half of the people who are 50 and older leave a job for non-voluntary reasons.
There is a significant break with reality in Americans about the conditions of Social Security. Bank of America is a large financial concern, and its research team should be on top of Social Security’s prospects. Benefits represent the largest income stream for average Americans in retirement. Yet, these financial experts ask a question that is at least 10 years out of date.
The problem for Millennials is not whether or not they will get Social Security. The much larger concern is what will happen to these younger workers when the benefit levels of their parents and grandparents are reduced. At that point, Millennials will not be saving more for retirement. They will be increasing spending on parental care.
The real question is when will Americans wake to the fact that working two additional years has little to do with keeping Social Security solvent.