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Social Security and the Economic Crisis

category_bug_politics.gif To any elder who receives Social Security benefits (all of us older than 65 or so), a survey by Sun Life Financial released last week is shocking: overall, 48 percent of American workers would prefer to stop paying into Social Security even if it meant they would receive no benefits when they become eligible.

The breakdown of the survey by age is understandable if, as is probably true, the younger you are the less you know about the benefit:

  • 59% of workers in their 30s prefer not to pay and not receive benefits

  • 51% of workers in their 40s agree

  • 44% of workers in the 50s prefer not to participate

The top shocker, however, is that 33 percent of workers older than 60 would choose to stop paying into Social Security if they had a choice – again, even if it meant they would receive no benefits.

As a reader emailed Andrew Sullivan who writes The Daily Dish at The Atlantic:

“This survey suggests that 1/3 of our soon-to-retire population has questionable financial judgment. If that isn't an argument FOR mandatory Social Security, I don't know what is.”

Let me make this personal for a moment. Twice in my life, after the age of 40, emergencies made it necessary for me to cash out my 401(k)s. In addition, three periods of unemployment ranging in length from a few months to two years, put me deeply in debt each time. After I found work again, it took many months to pay off the debt during which time, I could save – well, call it nothing; it was close enough.

Were it not for the value of my apartment in New York, which I sold in 2006 before the housing crash, AND SOCIAL SECURITY, I would be living in a rented room in the back of someone's home. I thank President Roosevelt and Social Security every month when that check is deposited to my account. I doubt that anyone whose Social Security benefit is more than pocket change would disagree.

Particularly with the collapse of the economy, it is incomprehensible that anyone would voluntarily give up Social Security in exchange for 7.2 percent more in their paychecks. Listen to economist James K. Galbraith writing last week in Washington Monthly:

“For the first time since the 1930s, millions of American households are financially ruined. Families that two years ago enjoyed wealth in stocks and in their homes now have neither. Their 401(k)s have fallen by half, their mortgages are a burden, and their homes are an albatross. For many, the best strategy is to mail the keys to the bank...

“...the American middle class find today that its major source of wealth is the implicit value of Social Security and Medicare – illiquid and intangible but real and inalienable in a way that home and equity values are not. And so it will remain, as long as benefits are not cut.” [emphasis added]

About a month ago here, I wrote about the approaching attack on Social Security. It comes from several conservative quarters, and one of them is particularly well-funded - one billion dollars in private money from 82-year-old billionaire, Pete Peterson, whose anti-Social Security/Medicare campaign William Greider laid out clearly in his Looting Social Security story in The Nation in early February.

The 21st century name for cutting Social Security and Medicare is the benign sounding “entitlement reform” and although he won't address it for awhile, even President Obama, in the period between his election and inauguration, committed himself to entitlement reform. In addition (Galbraith again):

“...on February 23 [Obama] convened what he called a "fiscal responsibility summit." The idea took hold that after two years or so of big spending, the return to normal would be under way, and the costs of fiscal relief and infrastructure improvement might be recouped, in part by taking a pound of flesh from the incomes and health care of the old.”

One of the most oft-repeated arguments for cutting Social Security and Medicare is that greedy geezers are taking money from the young. Last week Dean Baker, who is co-director of the progressive think tank, Center for Economic and Policy Research, pointed out the flaw in this reasoning at alternet:

“Finally, the recent collapse of the housing bubble and the resulting stock market plunge have reduced the wealth of older workers and retirees by close to $15 trillion. This is a transfer to the young, since they will be able to buy the housing stock and the corporate capital stock for a far lower price than they would have expected to pay just two years ago.

“Remarkably, the granny basher crew has somehow failed to notice this enormous transfer of wealth from the old to the young. They just continue their crusade to cut Social Security and Medicare as though nothing has happened.

“It should be evident that the granny bashers don't care at all about generational equity. They care about dismantling Social Security and Medicare, the country's most important social programs. It is important that the public recognize the granny bashers' real agenda so that they can give them the respect they deserve.”

As I've written here many times in the past, the projected shortfall in Social Security in 2041 when, if we don't begin fixing it now will result in only 78 percent of benefits being paid, is easily repaired.

Among the best suggestions are raising or even removing the salary cap on which the Social Security tax is paid. It is now capped at $106,800, so don't tell me it would harm poor people, and accomodation can be made for any burden to small business. Gradually raising the age at which full benefits are paid is another good idea - we are living longer, healthier lives than when Social Security was enacted in 1935.

John K. Galbraith's wide-ranging Washington Monthly story, titled No Return to Normal, is about why the economic crisis is bigger than we yet know and will last longer than the cable pundits, eager to sugarcoat our problems, report - and maybe even, according to Galbraith, it is bigger and will be longer than the Obama administration understands so far. But today, I'm concentrating on the sections in his story about Social Security. Here is the part of Galbraith's overall solution to the crisis that applies to Social Security:

“...we should offset the violent drop in the wealth of the elderly population as a whole. The squeeze on the elderly has been little noted so far, but it hits in three separate ways: through the fall in the stock market; through the collapse of home values; and through the drop in interest rates, which reduces interest income on accumulated cash. For an increasing number of the elderly, Social Security and Medicare wealth are all they have.

“That means that the entitlement reformers have it backward: instead of cutting Social Security benefits, we should increase them, especially for those at the bottom of the benefit scale.

“Indeed, in this crisis, precisely because it is universal and efficient, Social Security is an economic recovery ace in the hole. Increasing benefits is a simple, direct, progressive, and highly efficient way to prevent poverty and sustain purchasing power for this vulnerable population.

“I would also argue for lowering the age of eligibility for Medicare to (say) fifty-five, to permit workers to retire earlier and to free firms from the burden of managing health plans for older workers.

This suggestion is meant, in part, to call attention to the madness of talk about Social Security and Medicare cuts. The prospect of future cuts in this modest but vital source of retirement security can only prompt worried prime-age workers to spend less and save more today. And that will make the present economic crisis deeper.

“In reality, there is no Social Security 'financing problem' at all. There is a health care problem, but that can be dealt with only by deciding what health services to provide, and how to pay for them, for the whole population. It cannot be dealt with, responsibly or ethically, by cutting care for the old.”

For those of you who have read this far, I know I've given you a lot of dense reading today. I am about to give you more. Please read all the stories to which I've linked today and in particular, I urge you, plead with you, to read Galbraith's story. It is long and some of it is technical, but it is crucial to understanding all the economic news (some of it quite stupid) we are deluged with every day.

And it will also be important when, in the future, I ask you join the fight to save Social Social and Medicare from the entitlement reformers not just for ourselves, but for our children and grandchildren who, as the Sun Financial survey indicates, need to be saved from themselves.

[At The Elder Storytelling Place today, Joanne Zimmermann tells how she came to know You Are Not in Control.]

Comments

It's crazy and shows an amazing lack of imagination to not want to receive Social Security. My in-laws, for instance, retired about 20 years ago and they seemed to be quite well off. They had savings, their house brought another nice chunk of money and my father-in-law had a very nice retirement package, but it wasn't a pension. Now it's just my mother-in-law. There's much less money than there was and despite the fact that there's supposedly low inflation, what there is is worth a lot less than it was. Her little retirement home has plunged in value. She basically has to rely on SS now, even though that wasn't the case when they retired.

Then there's my husband. He's developed some serious conditions and has been on SSD for two years now. Good thing, because he really can't maintain regular employment and my salary alone doesn't cut it. Another thing people might not know is that, depending on your earning history, SSD pays considerably more he'd have gotten had he been able to hang on until age 62 and taken the early SS. Our 401k has taken some big hits, both because of his unexpected illnesses and the current unemployment crisis. Social Security allows us to get by. We never expected these things to happen, but then most people don't.

It seems to me that younger people overlook the fact that SS benefits free them from having to support their parents. I and my husband are self employed so we pay both sides of SS taxes, 13 percent I think. It's quite a bit for us so I hope we will be able to collect. The best thing that could happen for us would be if the age for Medicare was lowered to 55. Right now most of our income goes to taxes and insurance. There's nothing left to save for retirement. We'll just keep working as long as people will hire us.

Amazing! I know...I could rant for hours, but that wouldn't change the minds of these clueless citizens. Haven't they been paying attention during the past year?

The fight to preserve Social Security is probably the most important one we can engage in during this century. To lose it is to step back in time a hundred years.

The folks who want to reduce or cut out "entitlements" are incredibly short-sighted. The "greedy geezers" are their parents, if they can't live off Social Security they're going to live off their kids. Either those kids think it's the old ice floe for the old folks (and with global warming I suspect there is going to be a dire shortage of ice floes) or they are going to be supporting their parents themselves. While living in the backroom of some younger relative's home is a sad prospect, having a greedy old geezer sucking up your hard-earned salary in the backroom might be an even grimmer prospect.

Congress has told the O admin that any cuts to SS or Medi will be DOA. Your bigger worry is the massive inflation that is on its way via the idiotic financial recovery program (not) and the fact that there are not any willing countries left to finance our debt. It is now a 7:1 shot that the US will default on her debt...revolution or a new currency will occur and you can kiss all benefits currently paying to anyone goodbye. Start piling what you have left into tangible assets. Obama is in over his head, is not a leader and this is just a continuation of Bush.

Social security, as most of us will attest, is our only real lifeline. What did people do before Roosevelt put it in place?

I will definitely read the complete Galbraith article.

If it bails out corporations and banks, the government could hardly let a huge segment of the population starve to death. Thus, there is little risk to those who wish to abolish SS. It just means that unemployed people get bailouts from the government (regardless of their ages) instead of the money going to the older, unemployed people as SS.

I agree (and have, for some time, now--since we first started talking bailouts, which I call printing money) with Renee that inflation is now the big specter. I don't see default on US debt coming--inflation will see to it that we don't default (paying back in cheaper dollars). Nor do I agree with Renee on amassing tangible assets.

As to President Obama, anyone who is a human being would be "in over his head" as President of the US--considering the messes that the last administration pretty much ignored/encouraged/caused. (I am reminded of the fable of fiddling while Rome burned.)

Ronni,

Terrific research, and a very somber post. Thanks for the link to Galbraith's pice as well.

If the situation does become as critical as the pundit seem to think, it is unimaginable to think what the future holds for all Americans, much less just the elders.

I try not to worry too much about that which I have no control over, but at the same time, I want to feel like I am doing something to mitigate the results of this crisis.

Right now that something consists mostly of restless nights and handwringing with some acid reflux thrown in for fun.

If SS is not around in 10 years, Kman and I are going to be a terrific burden on our kids...that is not acceptable, but I am at a loss as to what I could do. We knew that we would have to work beyond SS allowed retirement age, but now it appears that work schedule will be appended to change that expected retirement date to death.

Without SSI I would be living on a tiny pension ($600 a month if the pension holds up) and the shreds of my 401K.

What concerns me further is the number of well-paying jobs that have been replaced with low-paying jobs. These people, young and older, are spending every dime to live and without Social Security they will have nothing. They are uninsured or poorly insured. One of my son's has insurance that never covers pre-existing conditions and caps out at $10,000. He is a hard working, college educated man; there are no decent jobs where we live right now. Some may not live to retire due to health problems. Maybe that is the plot.

Those who prefer to stop paying into the SS system express their doubts.I paid SS for 45 years,and recently developed similar concerns.While I voted for Mr.O.----the recent policies will create big inflation.This will cut the economic value of SS benefits---the big expansion in the budget,is not for seniors.Unfortunatley,Galbraith' commnets are based on no infaltion--times are different today.I wish I were more positive---but we have to look at actions and not PR.

Thanks you much for this brilliant post, far and away the best article I have read about Social Security.

I am old enough to know what happened to poor elders before Social Security and Medicare. They either lived with relatives who sometimes abused them or they went to the Poor Farm. It was a snake pit and was hidden from sight.

My grandmother lived with us for a while, but my step-father made her life miserable and she had to live with her sister and her insipid husband. If you have read my blog about Nama you know she deserved better. I am so much better off than she was (pre S.S.) even though Social Security is my only income.

If those who resent having the F.I.C.A. taken out of their paychecks could only realize that they will probably be old some day and the above fate could happen to them.

I think it is a con survey, a ruse to motivate privatization. Sun Life Financial is an Insurance Company http://www.sunlife.com/
In the book Truth by Al Franken you can learn about Front Groups and Leading with Lying, Advancing Agenda with fear and the Social Security Privatization for Profiteering Programs. Social Security by FDR is worth saving in and contributing to for the benefits of Staying Alive. Stay Calm, Think Positive, Be Honest Move Forward.

"I thank President Roosevelt and Social Security every month when that check is deposited to my account."

ME TOO!! I would be lost without it.

Teachers in 7 states only receive 40% of their Soc Sec because it is called double dipping while the rest of state workers get both soc sec and state pensions. I put in half my life to soc sec and the second half to state pension...that is not double dipping.It is an unfair law that picks out a specific population to save money. it is not as if I were moonlighting and contributing partially to another retirement program expecting full benefits.

Thank you. What if, if only, there should be, woulda shoulda coulda.

I'm a single woman and have been self-supporting all my life and am now 63. Although cash-drain emergencies have happened, I've been able to recover until the stock market crashed last year at my age 62. Never ever did I expect to be dependent on Social Security but I'm like you, I have deep gratitude for all that FDR did to give us financial stability, then and now, every month when my SS check is deposited.

Another frightening example of how effective "Big Money" can be at brain washing the population. Those over 50 who "would cut off their own noses" i.e. eliminate Social Security payments for eligible workers, are either brain-dead or brain-washed. I hope the 40% who would prefer not to recieve SS just leave their money in the kitty. That way we won't have to worry any more about a shortfall

Thank you for this detailed and incisive discussion of the dangers facing Social Security. You have done a great deal of deep research, and I for one really appreciate it.

I think that the head-in-the-sand attitude of those who would prefer to stop paying into the Social Security system is due to two factors:

1) People want more take-home pay, no matter how it is obtained.

2) Our cultural denial of aging. People are encouraged (should I say "bombarded by messages"?) to believe that they can stay forever young. They cannot picture themselves growing old and needing the income that Social Security provides. There are few images of the real lives of elders; the prominent accounts of older people are those, like Warren Buffet, for whom a Social Security check would be chump change. The average elder is pushed, and allows theirself to be pushed, to the peripheries of society, out of the public's eye.

I don't see this as changing as long as the youth culture is the dominant force in our society's mind. It's taken 50 years for this attitude to build to its present pitch, and even if a revision started today, it will take several more decades for it to revert to something more realistic.

I see the battle over Social Security being coupled with how our country handles its poorest citizens, and the reduction or elimination of Social Security benefits would impoverish millions of elder citizens. While the respect for elders is implicit in Social Security -- and we see that respect diminishing by the day -- there still may be hope for the program if our society summons the compassion and fairness to lift all its citizens out of poverty.

I don’t know what my mother and I would have done without Social Security back in the 1950s. It was our only income until I could get a job. And here I am once more receiving my monthly Social Security check. I was grateful then and now.

Social Security is my only income now. I don't get much because I stayed at home and raised children most of my adult life but I need every penny. If they eliminate it, I will die. And that's the bottom line for many of us older and disabled Americans.

Thanks for all your research. How short-sighted of anyone to want to eliminate Social Security! I look forward to reading the links. I am still working in order to get Social Security, self-employed so I pay for it twice, too, since I raised children in France and have no retirement.

My mother is now 92, and having suffered seizures, is no longer living with us. My father retired early, and has passed away, and the pension Mother receives for a full year amounts to less than one and a half months of Social Security. Luckily, my grandparents bought farm land, and passed it on to their children and grandchildren, or Mother would be very restricted in her options.

Seniors are living longer, and having to deal with expensive medical care. It would be folly to think that we don't need Social Security. The truth is that we will need it more with every passing year. Whether it will be there for us after a lifetime of paying into it is the question. I vote to continue it!

I'm 67 and still working full time but if my position is cut I will have social security plus a small pension...about 7-800 before insurance, etc. is deducted. Even a small efficiency apartment costs more than the pension if I should have to live on that alone. My 92-year old Dad lives solely on his social security. I cannot imagine cutting social secuity! It would create multi-generational devastation. I will read the entire article.

the sun life "survey" only sampled 1,200 people and the 33% over 60 could have been schewed to include people who could afford to not have social security.

i always distrust any insurance company coming out so publicly on topics like this: who's behind them? what are they up to?

unfortunately, most media won't spend the money to do their own careful polls; so they wind up taking pollsters who have a particular axe to grind.

being a journalist for over 40 years, i learned the hard way that a question can be posed to get the answer you want in just about any way.

know what I mean?

Ronni - thanks for such an interesting article. Social Security literally has saved us.May the Memory of FDR be a blessing. It also saved my parents and in-laws in their lifetimes. They never made "big money" and had no pensions. Neither did we and each month in my excel - I break down our checks into the expenses they cover and just "hope" from month to month we can make it. If it wasn't for the reverse mortgage access to cash (loan)on our ever decreasing valued home - Syd and I would be bankrupt. It really is tough. Having gone bust once in 2001 - I don't want to do it again. It was not a good feeling but it did get us out of credit card hell for a while. Sorry for being so long winded.

Great post, and a disturbing one. I am mystified by anyone who doesn't appreciate the value of Social Security.

A note to Charles Berry who mentioned that teachers get reduced benefits: office personnel in those schools also get reduced benefits. My mother, formerly a clerk in a public school, was outraged many years ago when this unfair policy went into effect and could not get people to understand why they should oppose it. Amazing.

Another thought: I don't like the idea of raising the age at which people can collect their full Social Security benefits. Although we may want to work longer, jobs are not always available to us. Ronni, you're a perfect example of that!

Yes, I'm not sure where these folks think their parents are going to go when they can no longer afford to live independently. Maybe to their guest bedroom?? But all this reflects the short sightedness that seems to afflict our business and political culture. I wonder how many older folks provided the money etc for their kids to go to college and get on their financial feet? I wonder if they will return the favor when their folks can't afford to live anymore?

Thanks for an informative post.

Excellent post, Ronni. Has been clear to me for some time we have a challenge ahead to get the truth out and combat those who would destroy Social Security not only for current recipients but for our young people. Thanks for the links.

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