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Social Security: Should Those Over 55 Be Protected?

Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to “Encore.

Someone asked whether any of the reforms enacted by state and local pension funds seeking to solve their funding crises could be applied to Social Security. Some states reduced or temporarily suspended their yearly cost-of-living adjustments (COLAs) for their retirees – a solution that seems fair to me. This approach raises the inevitable question of whether the traditional notion of protecting those 55 and older from benefit cuts under Social Security is appropriate.

Many states and localities face substantial shortfalls in their pension funding.  Experts argue about the extent that sponsors are at fault, but the fact is that public plans held substantial equities and were hit hard by the financial collapse of 2008. At the same time, the recession decimated state and local budgets by simultaneously reducing tax revenues and increasing demand for services. Because sponsoring governments could not make up for the drop in asset values, they enacted increases in pension contributions for both current and future workers, benefit cuts for new hires, the introduction of defined contribution plans, and – in six states –modifications of the COLAs for current retirees.

In all six states, the COLA modifications have been challenged in court. In two of the states – Colorado and Minnesota – courts upheld the changes. In both cases, the judges found that the COLA was not a core benefit that participants could expect to receive for life, and in Minnesota the judge ruled that the COLA modification was necessary to prevent the long-term fiscal deterioration of the pension plan.

In the case with which I am most familiar – Rhode Island – suspending the COLA and then linking future COLAs to the investment returns was an essential part of the solution. Retirees vastly outnumbered current workers, so making changes only for current and future workers would have had little impact on the state’s dire fiscal situation. Therefore, everyone needed to contribute to the solution.

So, how can it be fair for retirees to help solve the pension problem in Rhode Island and the other states and yet, when thinking about Social Security reform, tell those 55 and over that they will not be expected to contribute to the nation’s long-term solution to future funding problems?

The conventional argument for protecting Social Security participants is that older workers and retirees do not have the flexibility to adjust to benefit cuts. That is true, and these individuals should not be forced to endure drastic cuts. But the argument for leaving them completely untouched also does not seem compelling.

It could be argued that in the case of Social Security, the over-55 crowd actually misbehaved. It has been very clear since the early 1990s that Social Security would need additional money to maintain current benefits. Yet, the baby boom generation, instead of raising taxes on itself, kicked the can down the road. Now that many of its members are over 55, they want to foist the burden on younger generations. That does not seem fair.

This idea may seem heretical, but I currently think that some sort of COLA suspension or modification should be part of any package to fix Social Security. Such an approach has a precedent: the 1983 amendments delayed the COLA for six months when the program needed money immediately.

Any change to the COLA would have to be applied judiciously.  Many older people depend completely on their Social Security check for income in retirement. The vulnerable would need to be protected. Thus, COLA changes would have to be implemented on a sliding scale, perhaps based on family benefits. But leaving all those 55 and older untouched no longer seems like the right answer.


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    • Some of the folks who comment on the article do not seem to be understanding the total problem. If someone who is totally dependent upon social security for support after retirement (whether through their own fault or because of circumstances beyond their control) cannot afford to support themselves society (all of us) will have to foot the bill. Unless of course you want to support the idea of euthanasia.
      Reducing social security payments by reducing or eliminating COLA’s will not solve the ultimate problem. This will just force more people into poverty where the State (taxpayers) will have to support them through food stamps, etc.. Or, as I said, you could vote for ending their lives prematurely. I do not support euthanasia but we have some hard choices coming up no matter what.
      By the way, I also do not support giving non citizens or those who have not contributed into the system any type of social security or medicare benefits.

    • I am 54, and I feel this is a reasonable idea worth exploring. Perhaps cutting the COLA in half each year, or only raising it every other year would be a more reasonable approach. Typically the paranoid slippery slope thoughts start coming up when anything like this is suggested.

      Of course, another idea would be to only adjust the COLA for those who begin retiring next year, but that probably would significantly lessen the impact. The elderly that need that cost of living increase to pay for their meds, etc. probably would suffer most. So people that have not begun to take benefits would at least get a bit of a warning and know what is coming.

      To what extent any of these ideas would help to solve the problem is unknown to me. If though it would be a substantial help, I would be willing to work another year to make up the difference in my savings.

    • Alicia Munnell has been living off governement grants her entire adult career. She has a gold plated pension from Boston College. If anyone attempted to touch one dime of her pension she would be screaming bloody murder.

      You can take that to the bank.

    • A very narrow view. I would have thought that it would have occurred to you that retirees are already bearing a heavy burden for this folly. Interest rate have been near zero for years now and will be for several more years. Any economist would realize that with inflation of 2-3% and CDs and bonds yielding next to nothing we are in fact losing 2-3% of the buying power of our savings every year and paying tax on the interest as well. I think politicians better look somewhere else for their money, I’m in a really foul mood.

    • Alicia, you have got to be kidding when you try to play the “age warfare” card. The baby boom generation was part of several tax increases, dating back to Jimmy Carter, et. al., to put Social Security on a sound footing into the foreseeable future, at least according to the rhetoric sold by our elected representatives to the baby boomers [and others] at the time. We baby boomers accepted those tax increases under the promise that Social Security would be there for us. That was done even as we suspected that the politicians were probably speaking with forked tongues (Pinnochio noses), as they often did [and do] about how their legislation would fix the system. So we [and you] paid, I paid, and we are all still paying, and it’s still not fixed. Don’t ever say that we didn’t participate in tax increases to fix this!! Personally, I’d like to see the politicians who sold us these so-called “fixes” (starting with Jimmy Carter) be the first ones to pony up. Baby boomers also recognize that we’re all in the same boat as current workers, who also want to ensure their future. My personal favorites for fixing the system quickly and simply would be any of:

      (1) Begin raising full retirement age in stages. Thanks to medical technology, we are living longer than originally projected by F. Roosevelt’s Social Security, and the average retiree will collect for a longer period of time.
      (2) Raise the income ceiling on the cutoff for Social Security taxes. It’s currently somewhere above $100,000. Those earning greater amounts currently don’t pay more after the first $100,000 [or so] of income. Let the ceiling go higher, or remove it altogether.

      So there you have it from a “baby boomer.” Don’t say baby boomers haven’t done, or are not willing to address the issue. I’ll stop short of saying you should walk the same plank that our elected officials should for getting us into this mess. And no one, including yourself, will “push us out to sea” because of the size of our age group. We have paid and paid, and we have earned the right to collect!

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.