A look at the Social Security funding gap and ways to fix it

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• Geoff Bennett:

  Seventy million Americans receive Social Security benefits today, but the program is paying out more than it's taking in.

  Economics correspondent Paul Solman looks at that worrying financial gap and what can be done about it.

• Paul Solman:

  Social Security, the program most seniors rely on to support them in old age. But, as you have heard, it's running out of money.

  As our paychecks make clear, Social Security takes money from us workers today, the payroll tax, to pay recipients, yesterday's workers, once they're at least 62. More workers than recipients, the money accumulates in a trust fund. But fewer workers, more recipients, and the fund gradually drains, as is happening now.

  Alicia Munnell, Professor of Management Sciences, Boston College: In the early 2030s, the Social Security trust fund on the retirement side is going to exhaust its reserves.

• Paul Solman:

  That's Social Security expert Alicia Munnell.

• Alicia Munnell:

  Money is going to keep coming in from the payroll tax, but, if nothing is done, benefits will be cut, and no one wants that.

• Paul Solman:

  Well, as Social Security recipients, my wife and I sure don't. Neither do the 70 million-plus Baby Boomers born in our wake. Nor do you, I assume.

  Do you think the money is going to run out?

• Woman:

  I kind of have an inkling that it might.

• Paul Solman:

  Do you think the money's going to be there, all these headlines about Social Security running out of money?

• Man:

  I hope so. It comes out of my check every week, so I hope it does.

• Paul Solman:

  Do you think the money's going to be there?

• Man:

  God, I hope so.

• Man:

  I would say no.

• Paul Solman:

  There's plenty of reason for concern, says the lead author of the Social Security guidebook I helped write years ago, "Get What's Yours."

• Larry Kotlikoff, Boston University:

  The system is completely bankrupt, and whatever fix they come up with is going to be a much bigger burden on our kids and grandchildren.

• Paul Solman:

  Economist Larry Kotlikoff wrote "The Coming Generational Storm" back in 2004, has been sounding his alarm ever since.

• Larry Kotlikoff:

  The way we're going is either catastrophically cutting benefits or catastrophically raising taxes. We're always doing too little, too late. We're relying on future generations to be large in number and very productive in order to pay older people.

  So we're having each — allowing each generation of old people to go and expropriate their kids, and then tell the kids, don't worry, when you're old, you will get your chance to expropriate your kids.

• Paul Solman:

  Even if nothing is done, beneficiaries will still get 79 percent, almost 80 percent of the amount of money they're getting now, right?

• Larry Kotlikoff:

  A lot of older people are surviving just on Social Security, so cutting their living standard by 20 percent is just not acceptable.

• Paul Solman:

  So will Social Security beneficiaries actually take a big hit in just a few years?

• Alicia Munnell:

  I would say I'm not worried at all because no congressman or congresswoman could go back to his or her district if that happened.

• Paul Solman:

  The Democrats have long promised no cuts and the Republican campaign now claims the same.

• Alicia Munnell:

  In the Republican platform, all in capital letters, is a commitment not to take a penny out of Social Security or Medicare.

• Paul Solman:

  But former President Donald Trump has now also said:

  Donald Trump, Former President of the United States (R) and Current U.S. Presidential Candidate: Seniors should not pay taxes on Social Security.

• Paul Solman:

  But that would actually deplete the Social Security trust fund sooner and mainly benefit the wealthiest recipients. On the other hand, there are fixes.

• One example:

• Alicia Munnell:

  If they increase the payroll tax by 2 percent on the employee and 2 percent on the employer, that would solve the problem for 75 years.

• Paul Solman:

  So, right now, it's 6.2 percent that I as the employee pay and 6.2 percent that my employer pays, right?

• Alicia Munnell:

  Right.

• Paul Solman:

  And so this would be?

• Alicia Munnell:

  Eight-point-two and 8.2.

• Paul Solman:

  So that would solve the problem by itself?

• Alicia Munnell:

  That would solve the problem for 75 years. We're still in a point on the cost side where costs are rising because the ratio of beneficiaries to workers is rising.

  At some point, but we're getting closer to the point where that's going to level off. Once that's leveled off, you will be in a position where if we fix it for 75 years, it's fixed forever.

• Paul Solman:

  A second fix:

• Alicia Munnell:

  Increase the taxable wage base.

• Paul Solman:

  You see, there's a cap on how much of a worker's earnings are taxed for Social Security, this year, $168,600. It rises each year with the average wage. But the cap used to cover 90 percent of all earnings.

  Now, with rising inequality and ever more income at the top, it only covers 80 percent.

• Alicia Munnell:

  And there are a lot of people who say, just take the cap off, make the rich pay. I come down on just raising it to the old 90 percent target and moving along.

• Paul Solman:

  That would hike this year's cap to about $300,000 and cover about 20 percent of the shortfall. If the cap were removed entirely, it would cover something like 70 percent of the shortfall.

  So why not just remove the cap?

• Alicia Munnell:

  If you take it off and don't give people any benefits in return, it really breaks that link between contributions and benefits, which I think could endanger the popularity of the program.

• Paul Solman:

  OK, here's a third fix.

• Alicia Munnell:

  Invest some of the trust fund in equities.

• Paul Solman:

  In stocks.

• Alicia Munnell:

  In stocks.

• Paul Solman:

  Why is that a good idea?

• Alicia Munnell:

  Over the long run, stocks have earned higher returns than bonds, which is — what is in the trust fund now. They also are higher risk, so you have to be careful when you're talking about this that doesn't sound like magic money.

• Paul Solman:

  Still over time, investing some in stocks would probably help.

  Now, a fourth fix was one last enacted in 1983, the last time Social Security was reformed.

• Alicia Munnell:

  Raise the retirement age. Life expectancy is going up. It only makes sense to have people wait until they get their benefits.

• Paul Solman:

  But not everyone can wait, even though you get 43 percent more at age 70 than at 65.

  Why not wait until 70, where you get more money?

• Man:

  Well, when you're working a blue-collar job, sometimes waiting until 70 in your job is a little too late.

• Paul Solman:

  Because it's too hard on your body?

• Man:

  It's a lot of wear and tear.

• Paul Solman:

  Munnell has a tweak to account for folks like this.

• Alicia Munnell:

  I think you want to do something that just raises the age at which you get full benefits for those who can work longer, and those people are people in the top half of the income distribution.

• Paul Solman:

  So why haven't politicians done anything?

  On this, Munnell and Kotlikoff couldn't agree more.

• Alicia Munnell:

  Nobody wants to raise taxes or cut benefits.

• Larry Kotlikoff:

  It's political dynamite. It's the third rail of politics. Congress is more concerned about the next election than the next generation.

• Paul Solman:

  Meanwhile, waiting exacts its price.

• Alicia Munnell:

  Some options do disappear.

• Paul Solman:

  Investing funds in the stock market, for example.

• Alicia Munnell:

  A prerequisite for that option is a trust fund. And so as that trust fund goes to zero, that one sort of goes off the table.

• Paul Solman:

  I asked my 20-year-old grandson, Joe, what he makes of all this.

  So, as you know, your grandmother and I get substantial Social Security benefits.

  Joe Viola, 20 Years Old: Sure.

• Paul Solman:

  Do you think you will get those kinds of benefits when you're my age?

• Joe Viola:

  No, I don't think so. I would say that but I would hope, at least for me personally, that my income will be coming more so from the investments that I have made, the network that I have made. I'm not planning to rely so much on Social Security.

• Paul Solman:

  Joe says he's typical of the younger generations Kotlikoff worries so loudly about.

• Joe Viola:

  We have a lot of doubt and uncertainty, especially about the U.S. government, at least the circles that I'm in. And so it's hard to have confidence in any current system.

• Paul Solman:

  OK, final verdict. Will Social Security continue to be there or not?

• Larry Kotlikoff:

  Something will be done, but it will be too little, too late, and it will impose even bigger burdens on our kids, and the system will still not be fixed for the long term.

• Paul Solman:

  We have been talking to Munnell for years about this. Procrastination is the long-running theme.

• Alicia Munnell:

  We are so bad at fixing this problem. This problem has been so evident since 1990, and so we're in 2024. And I don't think we're really going to move on this until 2030. And so a 40-year lag between the time the problem is identified and the time it's fixed is a little long for my taste.

• Paul Solman:

  A little long, but not Social Security doomsday, and we may well be facing bigger problems by decade's end.

  But the "PBS News Hour," Paul Solman in Boston.