Kenneth Apfel has set two key priorities as U.S. Commissioner of Social Security. He wants to make sure the 65-year-old program will remain solvent and available in essentially the same form into the next century and he wants to get that word out to young and middle-aged American workers, today’s contributors to the system, many of whom feel they can’t count on Social Security being there for their own retirement. The best way to keep Social Security healthy, Apfel believes, is to deposit about $200 billion in federal budget surpluses into the system each year over the next few decades, to complement $515 billion in Social Security taxes collected each year. The government estimates that if nothing is done, Social Security will begin spending more than it collects in 2015, and will be depleted by 2037.
Q: A lot of younger workers wonder why they should be paying into a system that they fear won’t pay them benefits by the time of their own retirement? Is that a legitimate fear?
A: For the last 65 years, Social Security has been an intergenerational program. Of the taxes you pay today, almost all go to support your parents and grandparents. Social Security has never been a program that built up large resources for future retirees. That began to change in 1983, when we saw the Baby Boomers coming, raised the retirement age and began putting away some savings. But by 2037, we’ll be taking in just 72 cents for every dollar we need to pay benefits. That’s a big shortfall. We really do face a longterm challenge in this country. It’s one we can deal with, but the aging of America is something we need to confront. We need a strong reform to ensure our kids and grandkids will get Social Security. In my bones I believe they will. It’ll be there and it will be strong but there will have to be changes.
Q: What changes need to be made to ensure Social Security remains solvent?
A: I believe we need to use current budget surpluses to strengthen Social Security. We’re going to need added resources to pay benefits in the long run, and tapping into those big budget surpluses is the right way to go.
Q: Are we looking at a need-based system by the time current younger workers retire? We’ve always heard that Social Security may be there, but only for the poor.
A: I don’t think it will be a need-based system. Nearly everyone pays in and I think nearly everyone ought to get something out. Maybe people with more income would receive somewhat lower incomes, but if those with higher incomes don’t get something out, that erodes the fabric of the system. I don’t hear a lot of interest in means testing Social Security anymore and I think that’s good.
Q: How about Republican presidential candidate George W. Bush’s proposal to set aside a portion of the Social Security taxes each individual pays to set up a private individual retirement account? That has a certain resonance with younger workers who fear they could pay Social Security taxes for decades without seeing much personal benefit?
A: The Social Security taxes you pay today pay benefits for those who are retired today. If instead you set aside some of that money to build up for you in your own private account, who pays the benefits for those who are now retired? With any proposal that takes money out of Social Security, the legitimate question is how do we continue to pay benefits to those who are already retired?
Q: What has Social Security accomplished in its 65 years?
A: Before Social Security, a third of all seniors were living in poverty. My own grandparents lived on the edge of it. Now we’re down to 1 in 10 seniors living in poverty. If Social Security were gone tomorrow, half of all seniors would be back there. That gives you some idea of how important this system is in providing a foundation of support for American seniors. The issue is how do we provide this foundation for people our age? Are we ever going to have a time when we don’t have that foundation of support? I think the answer is no. It’s part of the fabric. If we use budget surpluses, we can keep it going through the middle of the next century and beyond.
Q: How about privatizing Social Security outright: letting each worker put the taxes into a private fund?
A: In Chile, which has such a privatized system, we’re already seeing thorny issues about how benefits will be paid. A couple of years ago the stock market dropped in Chile, and the government had to urge workers nearing retirement to delay retiring because of the drop (which had dramatically reduced retirement funds). I don’t ever want to see a Social Security commissioner in the United States of America urging 62-year-olds to delay their retirement because of a drop in the stock market. Reliance on the market for base benefits I don’t think is the way to go.
Q: Last October you began mailing worksheets to help Americans try to figure what their benefits might be, based on current and expected income and retirement ages. What was the reaction?
A: It has given older workers a clearer and more accurate estimate of what they can expect. For younger people it’s only a ballpark estimate. For them, there’s more uncertainty about their own earnings over their lives but also more uncertainty about what the future may hold for Social Security. A lot of people when they get that statement are saying, so I’ll get $800 a month. That’s not much. It can be a wake-up call for people to put more money into 401(k)s to supplement Social Security.
Q: How have expectations of what Social Security will provide changed over the years?
A: Right now Social Security on average replaces about 40 percent of earnings. That will be a bit lower for future generations because of boosts in the retirement age. Most retirement planners say people need 70 percent, maybe more, of their pre-retirement earnings to live an adequate life in retirement. For two-thirds of seniors today, Social Security is the majority of their income. But it’s meant to be only a foundation. There have to be savings and pensions and other things to supplement it or else people will have a hard life in retirement.
Q: So we are seeing a switch from a generation that relies on Social Security as its major retirement income to one that will not?
A: I think that’s true. If you go back 30 or 40 years, we’re talking about Social Security moving millions of seniors out of poverty. Now there’s a growing recognition that if one wants to live not just above poverty but live an average life in retirement, there’s a need to supplement.
Q: Are people realizing that goal of putting away enough additional money?
A: The majority of younger Americans liquidate and consume their 401(k)s when they change jobs. That’s financial suicide. But I think as the Baby Boom generation starts to focus on retirement planning, there’s less liquidation. A third of the people who got our Social Security statements said they would change their savings patterns and retirement planning as a result. Twenty percent said they’d consult a financial planner. That’s good news.
Q: So if younger workers want Social Security to be around by the time they retire, we need new sources of funding now?
A: If we’re sitting here 37 years from today without having made changes in Social Security, we’ll have done something profoundly wrong. We’ll have asked our children to resolve this issue, which by then will have gotten much more serious. We need to take action, make some moderate changes now to make sure the system will be there.
Q: What happens if we do nothing?
A: If we do nothing, within a generation and a half, payroll taxes will have to be raised 4 or 5 percentage points or benefits reduced 25 percent to make up the difference.
———-
An edited transcript
