Social Security will endure, with alterations here and there

Staying Ahead

June 22, 1998|By JANE BRYANT QUINN | JANE BRYANT QUINN,Washington Post Writers Group

WITH Social Security reform drawing ever nearer, you need to give some thought to how it might change your life.

Nothing certain can be said until a program has actually passed. But a few general principles permeate all the plans for change. Here's the state of play:

Social Security won't be allowed to die or be turned into a purely private program. It's the most popular government benefit ever, and will be retained.

But it will change. The current system of taxes and benefits cannot support all the boomer retirees, and everyone knows it.

The time for fantasy and denial has just about run out. Under current law, the first of the boomers will start drawing early retirement benefits just 10 years from now, when they turn 62. Soon after that, the trickle will turn into a flood.

Before that happens, reforms will have to be put in place. Some sort of agreement is sure to be reached within the next two or three years.

* The principal trade-off is between benefits and taxes. If you don't want payroll taxes to rise, Social Security benefits have to shrink. If you want benefits to stay about where they are, payroll taxes have to rise. How those costs should be distributed is the heart of the debate.

* Retired people generally support higher payroll taxes, to maintain Social Security as they know it now. But that's easy for them to say. They don't pay the tax. And whatever happens, their own benefits won't change.

Their attitude makes me think of Sen. Bob Dole's classic rhyme: "Don't tax you, don't tax me, tax the fellow behind the tree." In this case, the "fellow behind the tree" is the population that still works.

Current retirees should butt out of this discussion. The boomers and Generation X will shoulder all the benefit reductions and pay any payroll tax increases. They're the ones who should decide what kind of system they want.

* Older people do have one significant contribution to make to Social Security reform: the tax many of them pay on their Social Security benefits.

Congress won't increase that tax, so seniors don't have to worry about paying more. But some senior groups are lobbying to have that tax reduced.

Right now, part of that tax goes into the pool of funds used for Social Security benefits, and another part goes toward Medicare benefits. If seniors pay less, these pools will be a little smaller -- forcing even larger cuts in America's old-age safety net.

Considering the huge return that older people have received from Social Security, compared with the payroll taxes they paid, I hope they'll quit fighting the current tax on benefits. They should think of it as giving something back.

* Congress will not cut Social Security's annual cost-of-living raises. None of the serious plans suggest it.

Most economists agree that the Consumer Price Index overstates the rate at which prices are going up. To correct this, the Bureau of Labor Statistics is making technical adjustments. But Social Security recipients will get whatever the CPI is said to be.

* Boomers and Gen Xers earning average or higher incomes will lose the most from Social Security reform. Their payroll taxes probably won't go up. But the government will change the way their benefits are figured. Dollar for dollar, they'll get relatively less.

For lower-income people, by contrast, future benefits will roughly equal those they'd get today.

* Boomers will have to work longer than they do now. That's because the age for receiving early Social Security benefits will rise, perhaps to 65. The age for receiving full retirement benefits may also increase, perhaps to 70.

Even under current law, most boomers won't get full benefits until 67, up from 65 for current retirees.

Many boomers have often said that they're going to work until they drop, because they haven't saved enough. Social Security reformers will take them up on that.

* Life could go hard with boomers who have to retire early, perhaps because of illness or corporate downsizing. You'd have to wait several extra years before Social Security kicked in.

It's imperative that boomers and Gen Xers start now to save and invest more money. Join your company's retirement plan. If you belong already, put more money into it.

Social Security won't pay as much toward retirement in the future. That means you're going to have to pay more of it yourself.

Pub Date: 6/22/98

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