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According to the American Association of Retired People, Social Security serves nearly 2 million Georgians, or nearly 1 in 5 residents, providing payments that inject more than $30 billion into the state’s economy annually.

State leaders should plug into the continuing deterioration of the national program’s finances because any crisis in Social Security will be felt across the state.

On March 31st, the Trustees released their report which pushed the expected insolvency of the program forward a year to 2034. Absent legislation action, benefits are apt to be reduced by roughly 23% around that time.

Voters tend to look at this possibility within the vacuum of seniors, where the only person hurt is the beneficiaries whose check shrinks. In terms of the state economy, buying power in the state would fall by roughly $7B. A scale back on benefits would flow through to banks, the business community, and the state services as seniors adjust to life on smaller checks.

These changes are apt to affect all of us. Younger Georgians tend to underestimate the impact of the solvency issue of Social Security. The substantive concern isn’t whether they will or won’t collect benefits when they retire. The immediate issue is how will they adjust to a larger role in providing care to parents and maybe even grandparents.

Ronald Reagan was wrong: the nine most frightening words in the English language are “I’m your mother-in-law, I need a place to stay.”

Based on the numbers in the latest report, the average person who is 77 expects to outlive the system’s ability to pay scheduled benefits. In other words, the experts at the SSA believe that roughly half of these people will be turning 88 in 2034 as the program slides into the realm of the unknown.

Once again, the media coverage ignored the impact of time on the system’s prospects. Changing the date on the forecast from 2021 to 2022 generated roughly $800B in unfunded liabilities. This is the cost of doing nothing.

When you hear lawmakers say that we have time to deal with Social Security, you need to realize that the passage of time is financial cancer to the system. Essentially these politicians are telling you that we can douse a fire with gasoline.

The cost of time over the past decade can be illustrated by the tax increase required to push the system into the black. Back in 2010, the Trustees believed that we could have filled in the gaps in the program’s finances with a tax increase of 2.1%. To replicate that effectiveness today, Congress would have to hike the payroll tax by 3.6%.

Beyond the impact of time, the program quietly disclosed another statistic that has drawn too little attention in the media coverage of the latest report. According to the trustees, closing the financial gaps of the program by benefit reductions alone on those not currently eligible, would require a 25.4% cut in benefits, whereas these people face a 23% reduction in 10 years if the reductions are applied to everyone.

Imagine trying to convince someone who is 62 to take a 25.4% reduction to benefits right now in order to avoid a 23% reduction a decade from now.  As difficult as that argument might sound today, the trade-off only gets worse with time.

Washington doesn’t appear to be looking for solutions. The Democrats as a party are $20 trillion apart on what benefits Social Security should provide. Republicans on the other hand appear only committed to what they will not do; which is reduce benefits to current seniors.

To illustrate, there is a loose discussion of pushing the retirement age to 70 to offset the increases in the life expectancy of Americans. If enacted, the proposal means that the person born in 1972 (someone who is 51) will have experienced a 5 year increase in retirement age over a working career in which life expectancy of a retiree has risen by 3.5 years. That is a difficult trade to sell as well.

For those trying to find a solution, there is one unavoidable fact to consider. Current voters are going to get hit with the changes. Current workers are going to pay more in taxes, and those currently retired are going to face some reductions in benefits. This is not 1983 anymore.

We are in this unpleasant position because politicians have ignored the issue for too long, and we will only be in a worse position if they continue to wait.

Brenton Smith of Atlanta has written on the Social Security issue for publications ranging from Forbes to Market Watch.


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