The newest report from the Social Security Board of Trustees was released Monday. Unfortunately, a lot of people are missing the point.
Yes, the report actually moves back the projected date at which Social Security’s costs will exceed the taxes collected for the program, to 2020. The date at which the program’s retirement payments are expected to completely exhaust its reserve was moved one year back, to 2035, but the program’s disability payments now are projected to be in good shape until 2052, which is 20 years later than previously projected.
Some people are claiming this as a reason to breathe easier, saying it shows there is no reason to panic or to cut benefits in anticipation of problems in 2035. Things change. Let’s just wait and see what happens next.
But the trustees themselves say this would be foolish. It’s easier to fix anticipated problems today, while they remain relatively far in the future. The disability fund projections improved because today’s economy is so strong that many disabled workers have found jobs and no longer seek claims. We should all hope those conditions continue; however, history would suggest otherwise.
But the big point most people seem to be missing concerns Social Security’s underlying long-term problem. Simply put, Americans aren’t having enough babies.
The premise behind Social Security is that today’s workers are taxed to provide benefits for today’s retirees. Already this is a problem, with members of the large baby boom generation retiring and smaller younger generations bearing the burden. But the problem promises to get worse in the future.
The trustees’ report assumes the U.S. fertility rate will be 2.0 (meaning two children on average per woman of childbearing age) by 2027. But the actual rate, according to the report, was about 1.74 last year, and it has been on a long-term decline.
As Elizabeth Bauer, an actuarial and Forbes.com contributor, wrote, such a miscalculation won’t change the 2035 insolvency date for retirement benefits because today’s babies won’t be working by then, but “those low rates have a significant impact on the long-term finances of the program.”
The report itself shows that a fertility rate of 1.8, rather than 2.0, would mean a much larger deficit to overcome over 75 years.
What to do? That’s a difficult question, but perhaps Hungary, the tiny former Soviet bloc nation in Central Europe, has an answer.
Like many European countries, Hungary has been worried that its declining fertility rate would threaten its long-term ability to thrive economically.
Nearly a decade ago, political leaders there began implementing family oriented policies aimed at supporting strong families as the key to survival. As a result, according to various sources, newlyweds receive subsidies and qualify for low-interest loans, some parents can qualify for a mortgage subsidy and paid maternity leave now applies even to grandparents, in an effort to help parents return to work sooner.
Parents, meanwhile, get three years of paid leave, and the government pays for day care. Mothers with four or more children receive income tax exemptions, a logic that, unfortunately, seems lost on many who advocate higher taxes for Utahns with big families. Also, the more children one has, the more paid vacation one receives. Women who have worked at least 40 years can retire in order to spend more time with grandchildren.
President Viktor Orban recently told a gathering of U.S. political officials that these policies have helped to increase marriage rates by 43 percent over eight years, and birth rates by 21 percent, while divorces have declined.
The United States should take note. Such programs would be, of course, expensive. But the same could be said for long-term fixes to Social Security, especially given the lack of support in Congress to raise taxes, increase the retirement age or institute a means test for benefits.
Solving the declining fertility rate would help a host of other long-term problems related to the economy as well, as I wrote in a recent column.
Not everyone is ignoring this problem. Writing for The Motley Fool several weeks ago, Sean Williams said, “With birth rates falling for nearly a decade straight, this is beginning to look less like an anomaly and more like a new normal. For those of you expecting to be reliant on Social Security income during retirement, this is certainly a wake-up call.”
A lot depends on whether the right people hear that call and answer it.