The core of conventional retirement planning is this: Save, invest intelligently, work as long as is practical and — if those measures aren’t enough — learn to live on less. For decades, those have been the big levers that the typical person can manipulate to plan for the future.
But there is something else you can do. It has rarely been part of mainstream discussions of personal finance, which I deeply regret. It is time for you to get political, and to start thinking of activism as a behavior equal to saving and investing.
This isn’t just my belief: It is the view of a range of experts who argue about many things, but agree on the need for people to start thinking — and acting — differently about personal finance.
Let me explain why. The best thing most Americans can do to improve their financial prospects in retirement is to insist that Social Security is made financially solid. As I wrote last week, the nation’s core retirement system is moving slowly toward insolvency. Social Security must draw down its assets starting in 2020, officials say, and unless government officials act, benefit cuts are coming in 15 years.
Those reductions would be severe, starting at 20 percent and rising. Tens of millions of people would be harmed. The stakes, naturally, are highest for those with the least. For half of Americans currently in retirement, Social Security is the main source of income and has kept many people out of dire poverty. And for those fortunate enough to have more money in the bank, any cuts to Social Security would still seriously affect their budgets and quality of life.
Solidifying Social Security may be the most important personal finance dilemma that most people will ever face.
The question is, what should you do about it?
The program’s fiscal issues have long been known, and the traditional advice has basically been: Make the best of it. To that, I’d add: Speak up and demand action from the people who are, or want to be, your elected representatives.
As Alan K. Simpson, the former Republican senator from Cody, Wyo., told me this week, “Nobody in politics, and I mean nobody, really wants to deal with Social Security a second before they have to.” He added, “People have to stand up and make their voices heard or nothing will happen until it’s too late.”
Reasonable people can differ on what form a Social Security solution should take. Experts who have studied the subject extensively disagree about exactly what should be done, though the solutions may be boiled down to tax increases, benefit cuts or combinations of the two. (Maintaining full benefits through debt financing is possible, though I don’t consider it a sustainable solution.)
Ordinary Americans have an opportunity — really, an obligation — to force this debate to occur. “This is now a big enough issue that I think people should actually become politically active and let their congressmen and senators know how they feel about this program and how they think the financial shortfalls should be filled,” said Alicia Munnell, the director of the Center for Retirement Research at Boston College. “I cannot think of a more serious problem going forward than the fact that benefits might have to be cut by 25 percent if we don’t have some political action.”
Professor Munnell, an assistant secretary of the Treasury and member of the Council of Economic Advisers in the Clinton administration, says Social Security should be repaired solely by increasing tax revenues — not by cutting benefits, which, she says, most Americans simply cannot afford to lose.
Mr. Simpson, on the other hand, says a combination of tax increases and benefit cuts are needed, though says this solution isn’t popular. “Everybody and his brother will jump all over you,” he said. “I’ve been there!”
Along with Erskine B. Bowles, President Bill Clinton’s former chief of staff, Mr. Simpson headed a commission appointed by President Barack Obama to find bipartisan solutions to the budget deficit, Social Security and other problems. The 2010 report of the Simpson-Bowles commission, “The Moment of Truth,” still makes interesting reading. But neither the Democratic or nor the Republican parties embraced it. “The politicians didn’t want to touch it,” he said. “They didn’t want to make the hard decisions.”
But, he said, a full-blown crisis has drawn close enough to make it worth the effort of trying to force the political class to play close attention.
Ask your elected representatives what they intend to do about Social Security, he said, but expect to hear something like this: “No problem, we’ll fix it, don’t worry, there will be no benefit cuts.”
When you hear that kind of thing, he suggested, you should respond forcefully. “You should say, ‘Sir — or ma’am or whatever — with terminological exactitude, you are a lying sack of’” — well, you get the idea.
“Unless you force them,” Mr. Simpson said, “the politicians won’t even try to fix it until the last minute.”
It’s not hopeless. Bipartisan Social Security agreements have occurred in the past. President Ronald Reagan, a conservative Republican, and the speaker of the House, Thomas P. O’Neill Jr., a liberal Democrat, achieved one in 1983 — but only after older people rebelled at the prospect of imminent benefit cuts. Members of Congress received an avalanche of calls and letters from their constituents, and organized labor and the AARP vowed to put pressure on elected officials.
The Reagan-O’Neill Social Security fix effectively cut benefits by, in part, raising the so-called “full” or “normal” retirement age from 65 to 66 now, and 67 eventually. There is a paid incentive to work until 70: 8 percent annual benefit increases for every year you delay filing past your “full” retirement age.
The “full” age might be raised further in a future fix — Mr. Simpson says that is among the measures that would need to happen if direct benefit cuts are to be avoided. Working longer may become even more important for those able to do it.
Whether Social Security pays full benefits, or close to those currently promised, is likely to remain an essential issue — quite possibly, the essential issue — in determining most people’s financial well-being in old age. That’s why speaking out about the shortfall makes sense as part of your own financial planning.
Recall what President Reagan said when he signed the agreement that kept Social Security intact for a generation: “We promised that we would protect the financial integrity of Social Security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we’ve done that, too.”
The solution was imperfect — and needs to be remedied again. As President Reagan acknowledged, “Each of us had to compromise one way or another. But the essence of bipartisanship is to give up a little in order to get a lot.”
Bipartisanship may seem impossible now. But politicians will jump on a popular bandwagon if voters demand it, as they did then. It can happen again for Social Security.