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Grace Opey
photo:Chris Shields

Social Security for Non-Nerds

Metroland’s guide to the debate that will affect your family for generations to come, but that you have likely been avoiding like the plague

You’ve been hearing the back-and-forth: Bush saying Social Security is in “crisis” and we need to be allowed to invest our money ourselves. The AARP saying the Bushies are trying to knock down a house to fix a clogged pipe. And on and on. The truth, as usual, is complicated.

Let us help. If your eyes glaze over at the thought of trying to sift through competing rhetoric, charts and jargon, follow along with our quick, plain-English explanation of what all the fuss is about, plus some stories of people who rely on Social Security today.

Though the fight over Social Security may have been edged off the front pages for the time being, it will certainly rise again. And you might want to know what it’s all about—after all, you don’t plan to work your whole life, do you?

How does Social Security work, anyway?

A payroll tax is applied to most workers’ earnings, up to $90,000. (It’s currently 12.4 percent, paid half by the employer, half by the employee.)

That money is used to pay guaranteed monthly benefits to current retirees, surviving spouses and children, and the disabled. Younger workers pay for these benefits when current workers retire.

For retirement, the amount you get every month is based on an average of your 35 highest-earning work years, adjusted for how much average wages have been rising since you started working. (The disability and survivor formulas are more complicated.)

The amount you get every month will be enough to replace somewhere around 60 to 70 percent of your average working income, and will increase with cost-of-living adjustments every year.

Increasing Social Security benefits have been responsible for dropping the historically high poverty rate among the elderly from more than 35 percent in 1960 (and much higher in 1939) to around 10 percent in 1995—about the same rate of poverty as for working adults. (National Bureau of Economic Research)

Is Social Security in crisis?

Depends what you mean by crisis. Here’s what the Social Security Administration’s accountants predict, if nothing changes:

Because of increasing life expectancy and lower birth rates, by 2017 the system will take in less than it pays out.

By 2042, the trust funds will run out and the system will still be taking in less than it has promised to pay out, so benefit levels will have to be reduced so the taxes coming in can cover them.

So . . . it is not about to immediately become “bankrupt,” as the Bush administration keeps claiming. In fact, some people point out that using the trust-fund surplus that has been accumulated from the baby boomers to pay for their retirement is not a failure; it’s how the system is supposed to work.

The question is: Will the system right itself when the next generation is ready to retire? Some claim it will as long as the economy keeps growing. The SSA thinks it won’t, except perhaps under an unlikely “best-case scenario.”

Does “Social Security reform” equal cutting benefits?

Though lots of people have gotten this idea, no one, not even the Bush administration, is proposing cutting benefits for people currently receiving Social Security, or who retire before 2012.

However, one plan that Bush has said he supports is called “progressive price indexing.” For rich folk (over $90K per year), this plan would set their initial benefit levels based on the rise in prices, not the rise in wages. For poor folk (up to $20K per year), it would leave the current rise-in-wages formula in place. For everyone else it would use a midpoint between the two, based on a sliding scale.

So for some, including much of the middle class, price indexing is definitely a cut in benefits compared to what the system is promising now (unless, of course, prices rise faster than wages over your lifetime. They usually don’t). What it wouldn’t be is a cut in benefits compared to what people are getting now.

But since most people figure out how much they want to retire with based on their income, not on general prices, some like the AARP argue that moving from using wages to using prices to set benefits turns Social Security into a welfare program rather than a social insurance program.

Will personal accounts save social security?


Even Bush has finally admitted that allowing people to divert some of their payroll tax into personal accounts won’t do a darn thing to help Social Security in the long run.

Not to mention that in the short run some $2 trillion would have to be borrowed to make up for all the taxes not coming in to pay current recipients. That’s a boatload of debt—nearly as much as the Social Security reform boosters are try to save over 75 years by reducing benefits.

This is probably why privatization is now considered dead in Congress.

So what the hell do we do about it?

There are tons of ways to change Social Security to make the numbers work out better for the very long haul. Not surprisingly, they all boil down to “take in more money” or “pay out less money.”

Still, Bush’s commission to look into Social Security reform took as one of its starting principles that it couldn’t consider taking in more money from taxes. No wonder they came up with reducing benefits!

Here are the major categories of ideas that have been floated:

Raise payroll taxes, eventually building in a periodic increase based on increasing life expectancy.

Raise the cap on how much income is subject to payroll taxes.

Add a new tax on wages over a certain amount

Use a permanent estate tax to supplement the payroll tax

Invest the trust funds for higher returns

Reduce the cost-of-living adjustment

Adopt progressive indexing (see Does “Social Security Reform” equal cutting benefits?)

Reduce growth of benefit levels across the board

There are so far no formal plans supported by either side of the aisle—and according to researchers, most of the packages that are being proposed by various legislators and economists are not actually enough to make the system solvent in the long term.

One plan, proposed by Peter R. Orszag and Peter A. Diamond of the Brookings Institution, would succeed in being a permanent fix, at least according to both the SSA and the Congressional Budget Office. It looks like this: a new 3-percent payroll tax on wages above what is currently subject to Social Security tax. An increase in the amount of wages subject to the regular Social Security tax. A gradual increase in the regular Social Security payroll tax, hitting 15 percent in 2075. A gradual reduction in the growth of promised benefits, down 2 percent by 2025 and 23 percent by 2105.

Better or worse than progressive indexing? You be the judge.

Should we really be trying for a permanent fix?

Social Security is a long-term program, so it makes sense to be looking at long-term solutions. And it sure would be nice to (a) not have to keep trying to pass tax increases and (b) have it going smoothly enough that no future cowboy has an excuse to try to privatize it.

On the other hand, economics is a notoriously imprecise science. Demographics less so, but they are still not exactly set in stone. The predictions about how social security will fare rely on predictions about birth rates, immigration, inflation, wage growth, interest rates, unemployment rates, and life expectancies. There is already serious debate about them.

Therefore, some, like former Social Security commissioner Robert Ball, say that trying to craft a permanent fix now is a silly and ultimately impossible goal. They advocate more modest measures that should get us through the next 75 years or so, with smaller changes along the way as necessary.

OK, I’m starting to get the picture, but I want to read more. Where do I go?

Social Security Administration:

New Yorkers United to Protect Social Security: www.inthis

President’s Commission to Strengthen Social Security:


The Orszag and Diamond plan: policybriefs/pb126.htm


Sarah Lee Trotter

photo:Chris Shields

Faces of Social Security

Social Security policy is dull and abstract, but the people it supports are very real

Grace Opey is currently in a wheelchair due to a broken hip, so she has to wait for an elevator to bring her up to the main level of the Senior Center on Delaware Avenue in Albany. Or the delay may actually be from saying hello to everyone she passes. After all, Opey, who is 85 years old, has been attending the senior center for 24 years.

Opey remembers first getting her Social Security number and memorizing it when she left high school to begin working. She started work at 30 cents an hour as a clerk at Montgomery Ward’s department store in Menands. “How do you like those potatoes?” she chuckles. “I know people here who made less. (In today’s dollars, 30 cents is $3.86, below minimum wage and well below the poverty level. This is why people support using wage growth rather than inflation to calculate benefit levels.) She went on to work at the Fort Orange Chemical Supply and a local store. “I worked there until I got married,” remembers Opey. “I was married for 50 years and 4 months.”

Her husband, an accountant (“smart as a whip” says Opey), was 10 years older than her, and tried to save up enough to keep her comfortable if he passed away first, which he did. She recently was engaged to be married again (a picture of the couple hangs in the Senior Center), but her fiancé died during surgery. He also left her a substantial sum. Nonetheless, Opey says, Social Security is still her main source of income. She’s not sure how much; her niece handles the paperwork, and the grocery shopping and anything else she may need.

Opey is aware that her situation is much different from what her parents experienced. “In the Great Depression we had nothing,” she recalls. “My mother had such a time making ends meet. My dad worked in the West Albany shops—North Central railroads. He was always out of work, on strike or laid off. My mom had to scrub floors to put food on the table. My dad never got to retire, he passed away. Things were so different then; there was nothing coming in, no Social Security or anything coming in. My mom worked at the Watervliet Arsenal during the war. Then she finally sold her house.”

Sarah Lee Trotter is also grateful for Social Security keeping her afloat. Like Opey, she worked until she married and raised children, though she also went back to work as a teacher for a while when her kids got older. She worked as a typist for a couple of state agencies and a packing company in Kingston, and then finally at the Mental Health Association, where she stayed for seven years. “I started as a clerk-typist, then a receptionist, an accountant, then supervisor over the maintenance,” recalls Trotter. “They gave me several dinners.”

Unlike Opey, Trotter has no survivor benefits in her Social Security.

Though she tried to save, at 68, the mother of four and grandmother of 11 has used up her savings—the last she had was $400, which she gave her daughter for college. She gets $514 a month from Social Security and $216 in spousal support payments.

Even with Medicaid, Medicare and public-housing support, Trotter’s budget is very tight. She pays her bills at the beginning of every month, and then budgets how much she can spend on food, clothing, and other necessities. She generally alternates months, saving up for an item of clothing one month or a special food item the next. “I have to skip, one month I’ll take a little out and save,” she says. “I thank God that I get as much as I do.”

Trotter spends her days keeping busy with volunteering at the senior center, evangelizing and playing piano with her church, and knitting for friends (this week she’s at work on a baby cap). She says she’s heard on the news that the government was going to shrink Social Security, “going to cut it down and make it less.”

“I think [Republicans and Democrats] should get together and understand what both parties are saying and both parties are doing,” she says. “I don’t think Bush is doing very much.”

—Miriam Axel-Lute

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