Message to Young People: Social Security Will Be There For You, Unless You Let Wall Street Take It Away From You

This week, the Trustees of the Social Security Administration issued their annual report on the state of Social Security’s finances. This annual exercise is required by law, and it gives people who wish to do away with the system a yearly excuse to fulminate against our national retirement program.

Unfortunately for the fear-mongers, Social Security is not—and never was—facing a crisis. In fact, this year’s Trustees’ report was deemed to be so lacking in news value that The New York Times relegated its short article about the report to page A14 of the print edition. As things stand, any problems that might arise with the system are two decades away, and even those problems would be minor and easily manageable.

Although there are policy changes that could be adopted today to make even those problems less likely, there is no need to expend political capital doing so. After all, the only thing that Congress could do, even if it were not in total gridlock, is to reduce future benefits for today’s younger workers. But if that were to become necessary, the changes could certainly be made when the need had become clear. And if changes are ultimately unnecessary, then we would have needlessly harmed future retirees by jumping the gun today.

Despite all of these facts, of course, the public has been bombarded by a decades-long campaign of misinformation, with conservative politicians claiming that Social Security is “going broke” and that the Baby Boom generation is somehow using Social Security to cheat the generations to follow. This is completely untrue, but the ceaseless blizzard of falsehoods has had an impact, especially in convincing younger people that Social Security is taking their payroll taxes now but will be long gone before they retire.

Therefore, it is important that young people learn the truth, which is that Social Security will be there for them, and it will give them a foundation for living a dignified retirement. It is, of course, always a good idea for each person to save additional amounts for the future, but younger Americans should not fear that they will be denied Social Security benefits when they are ready to retire.

There is, however, a huge caveat to that calming advice. Social Security will be there only if people continue to support it politically. It is essential not to allow anti-government ideologues and Wall Street banks to use their disinformation campaigns (supported and amplified by Republican politicians, as well as many so-called centrist Democrats) to hoodwink young people into harming themselves by abandoning Social Security.

Because there are so many lies floating around about Social Security, it is important to start with a basic explanation of how the system works. In particular, it will be important to explain the “trust funds” and what it would mean if they were ever to be depleted.

The Mechanics of Social Security and the Trust Funds

If there were never any changes in the size of generations, and if wages did not grow over time, running a program like Social Security would be simple: We would determine the benefits that retirees will receive, and then set the tax rate to collect enough money each year to finance those benefits. This “pay as you go” model sets up a simple intergenerational agreement, by which current workers pay for current retirement benefits, knowing that they will receive the same treatment down the road.

Even when generations vary in size, and wages change, it is still possible to run a system like this. It would, however, become necessary to change benefits and tax rates, perhaps every year, if the goal were to run neither a surplus nor a deficit each year. In that case, workers would not know from year to year how much they would pay in payroll taxes, and retirees would not know whether their benefits might be cut.

In the 1980s, the U.S. decided instead to build up a “trust fund” to pay for future retirement benefits, which would grow while the large Baby Boom generation worked, and would then be drawn down after that generation retired. The hope was that, once the Baby Boomers are all gone, then the system could go back to something resembling pay-as-you-go.

As it turns out, it is possible—not certain, but possible—that the amount of money building up in Social Security’s trust fund is not quite big enough to cover the full cost of the promised benefits for current and future retirees. This possibility, that the trust fund will reach a zero balance, is what people are referring to when they talk about Social Security “going broke.”

Each year, news reports follow the lead of the Trustees, who issue press releases (summarizing the hundreds of pages in the annual reports) that focus on the latest predictions of whether and when the trust fund will be depleted. This year, like last year, the Trustees predicted that in 2033, or nineteen years from now, the trust fund would reach zero.

That prediction is drawn from the “intermediate scenario,” which is one of three different forecasts that the Trustees issue each year, based on different economic and demographic assumptions. Under the “high-cost” scenario, the depletion date would be 2029, four years earlier than the date reported in the headlines.

However, under the “low-cost” scenario, the trust fund would not only never reach zero, but it would start to grow again after all of the Baby Boomers have retired. Moreover, the assumptions under the “low-cost” scenario are hardly pie-in-the sky, but in fact are based on quite reasonable guesses of future economic outcomes. In short, even the Trustees themselves continue to publish a more-than-plausible scenario in which Social Security’s trust fund remains flush for the entire 75-year forecast period.

But what would it mean if the trust fund really did run out of money? Would Social Security then be “bankrupt,” or “flat broke,” or any of the other dire words that politicians use to stoke fear and panic? Hardly. According to the Trustees, at that point the money coming in from payroll taxes would still cover 77% of promised benefits. Moreover, as I described in a Verdict column last summer, benefits are scheduled to increase every year (above inflation), so that even if benefits had to be reduced by 23% in 2034, future retirees would be receiving virtually the same benefits as today’s retirees receive.

What is at stake, therefore, is essentially whether or not post-Baby Boom retirees will receive higher benefits than today’s retirees, not whether future retirees will receive anything at all.

In short, the idea that the Social Security system is somehow broken, and that it will require draconian cuts in future benefits (or increases in taxes) to prevent it from disappearing altogether, is simply false. Even if the trust funds reach zero, the system would continue to operate, and the reduced benefits would not leave future retirees impoverished compared to today’s retirees.

The “Inverted Pyramid” and the Power of Half-Truths

All of the facts above are under-reported, but they are also objectively true. That is, even if the Social Security trust fund “goes bust,” that would not mean that future retirees will have paid into a system that gives them nothing in return. We certainly hope that the economy is more prosperous rather than less prosperous, for many reasons. But even that bad outcome regarding Social Security is nothing like the myths that the politicians would have us believe. In this case, one side is right, and the other side is wrong.

Even so, many people continue to believe the hype about Social Security’s supposed doom. In part, this is a matter of playing upon people’s cynicism, especially the idea that “the system” in general is rigged against regular people. It also, however, is especially effective because young people seem all too willing to believe that their parents and grandparents are really doing them harm.

And, in a way, who can blame young people for being suspicious? It is certainly true that the older generations have disastrously mismanaged climate policy, with scientists now convinced that environmental disasters will be an inevitable result of our unwillingness to reduce pollution for the last century or so. If parents cannot be trusted to bequeath breathable air and stable coastlines to their kids, why should younger people not imagine that the old folks are being just as irresponsible with Social Security and everything else related to the economy?

That the myths about Social Security turn out not to be true, therefore, is often met with deep cynicism on the part of young people. Beyond the lack of trust, however, Social Security is especially fertile ground for demagoguery because it seems so complicated. And that makes it easy for young people to be sold half-truths as if they were profound insights.

For example, over the past six months, I heard two people in their early twenties use a term that I had never before come across. Without any prompting from me, both brought up Social Security during conversations about their career paths, and both casually mentioned something called “the inverted pyramid,” as if that were a term that everyone simply knows. These students, by the way, attended different schools (one a law student in Washington, DC, and the other an undergraduate in Boston), and there is no reason to think that they have any friends or family in common.

Later, I spoke with yet a third twenty-something (a recent college graduate from Ohio), and his comments were instructive. Even though we had not been talking about anything remotely relevant to Social Security up until that moment, when I changed the subject and said, “By the way, I heard the term ‘inverted pyramid’ from a few people recently. Have you ever heard of that?” he responded: “No, but I can guess that it’s about Social Security!”

When I asked him to explain, he said that “all young people know” that when their parents retire, there will be more retirees than workers. The large number of non-workers at the top of the pyramid, therefore, will receive support from the small group of post-Baby Boomers at the bottom. This visual image apparently captures the burden that young people have been told awaits them in coming years.

The grain of truth in that myth is that the ratio of workers to retirees will decline over the next decade or so, before stabilizing and eventually rising again. But it will never even come close to one-to-one, much less become “inverted,” with more than one retiree per worker.

Moreover, the retiree-to-worker ratio is only half of the story, because each worker is becoming more and more productive over time. Think about the ability of workers in 1900 to dig ditches with hand shovels, compared to the much greater ability of workers in 2014 to dig ditches with sophisticated equipment. Because each worker in succeeding generations can produce so many more goods and services than previous generations of workers were ever able to produce, even having fewer workers supporting each retiree can be easily managed, while still allowing future workers to enjoy living standards that are higher than today’s workers could ever hope to receive.

Even so, once a demagogue has been able to tap into young people’s understandable cynicism, it is easy to feed them a steady diet of misleading sound bites.

Fortunately, up to this point, the political momentum to abandon Social Security has stalled. Ironically, it is the older generation—which is supposedly so greedy and failing to protect generations to come—that has stood up for Social Security’s future, even though those older people’s benefits are not in jeopardy. It is their children’s and grandchildren’s Social Security benefits that are at risk from this political sleight-of-hand, and it is those future benefits that the defenders of Social Security are protecting.

It is essential, therefore, that young people look beyond the hype and understand that heavily financed politicians are cynically trying to goad young people into destroying every generation’s best hope for a secure retirement. Social Security will still be there for the generations that follow the Baby Boom, but only if we continue to protect it from political assault.