Personal Finance

Social Security, a lifeline for millions, needs its own life preserver

National Social Security month just ended, and it concluded with a sober reminder.

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It has historically been a powerful force against old-age poverty and the foundation of financial security for all those in retirement. But unless something is done, Social Security will morph into a major source of stress and insecurity, as people worry about how much they can rely on promised benefits.

While Social Security plays a crucial role, the checks are not large. For new retirees who claim benefits at 66, the current full retirement age, monthly benefits range from about $840 for low-paid workers to $2,950 for those who consistently earned the maximum taxable amount. In fact, many workers claim early, which reduces the amount they get by up to 25%.

For the most desperate beneficiaries, tacking on a 23% automatic reduction would be ruinous. Yet this is what the trustees project in 2034 will happen by law when the program no longer has any reserves and is forced to restrain its benefits to annual income.

The OASI trust fund will deplete in these intervening years because the program is now paying out more in benefits than the payroll taxes that are collected. This means that while Social Security formerly helped the federal budget picture, it is now adding to annual deficits, which are headed to unsustainable levels.

In short, Social Security has a financial problem that could threaten the income security of current and future retirees – a compelling reason to fix the program. And reform would also be an opportunity to modernize benefits in a way that is more effective in matching 21st century longevity, modern demography, changes in patterns of marriage and divorce, and retirement income adequacy, among other worthy objectives.

It is not hard to develop a package to meet these objectives. Over the years, many studies, working groups, commissions and others have recommended combinations of reforms that helped the oldest beneficiaries, raised up the poorest seniors and put Social Security on a sustainable path.

Many financial experts talk a lot about how important Social Security is, proclaim how badly reforms are needed and issue white papers on the nuts and bolts of a fix. But in a program that has traditionally been considered the third rail of politics, policymakers have taken no action. That needs to change.

Social Security’s current and future beneficiaries deserve better than a symbolic month. They deserve a predictable program that can be relied upon, one that is on sound financial footing. Seniors deserve to stop worrying about the size of their future checks and turn to planning a rewarding retirement.

While the two of us probably disagree on what specific changes to make, we agree that it is imperative to move forward. Politicians, stakeholders, and analysts on both sides of the aisle agree that reforms are easier and more effective the sooner action is taken. As Congress continues to drag its feet, the window for an orderly reform is closing. Now is the time to act.

— By Douglas Holtz-Eakin, president of the American Action Forum, and Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Both organizations are members of the Funding Our Future campaign for retirement security.

Check out 4 Money Lessons Everyone Should Know by Age 25 via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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