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Social Security’s Uncertain Future

Regardless of your political viewpoint, there’s probably a vague (or not-so-vague) sense of trepidation about the future of programs like Social Security.

The term “third rail,” used in a political sense, may have been coined in reference to Social Security. The late William Safire, who was both a linguist and political commentator, attributed the term to congressional aide Kirk O’Donnell. In a 2009 column for The New York Times, Safire reported that O’Donnell’s original quote was, “Social Security is the third rail of American politics. Touch it, you’re dead.”

Regardless of your political viewpoint, there’s probably a vague (or not-so-vague) sense of trepidation about the future of programs like Social Security. In 2016, changes went into effect that eliminated a strategy called “file and suspend,” which had allowed married couples to utilize a combination of spousal and primary benefits to maximize the benefit for the household. People from all walks of life utilized this strategy, not just the very wealthy, but it was easy for Washington to slash this provision, painting it as a loophole for the rich.

On the heels of that change is word that some members of Congress are mulling possibilities for privatizing Medicare and making further revisions to Social Security.

It should be noted: While neither political party is eager to campaign on “third rail” issues pertaining to Social Security, proposals for change have come from both sides of the aisle. Members of Congress aren’t simply chopping benefits to be spiteful, although it might sometimes seem that way at first glance. The proposed fixes are designed to keep the Social Security system solvent for decades to come.

The latest attempt at a Social Security fix comes from U.S. Rep. Samuel Johnson, a Texas Republican. Before you become irate that one political party is going after your benefits, remember that the elimination of file-and-suspend was driven by the other party.

Johnson’s bill aims to change the way the Social Security Administration calculates benefits. While Johnson’s proposal would result in many lower-income workers getting a higher benefit, it would also slash the monthly check for many middle-income workers.

According to Laurence Kotlikoff, an economics professor at Boston University and author of The New York Times bestseller Get What’s Yours: The Secrets to Maxing Out Your Social Security, the very complexity of the Social Security calculation formula may provide Congress with the catalyst to make changes.

“This complexity provides great cover for Congress to gradually, subtlety, and substantially cut benefits,” Kotlikoff wrote on Forbes.com.

Kotlikoff credits Johnson for attempting to fix Social Security, but points out some serious flaws in the proposal.

Kotlikoff has long sounded the alarm about the long-term prospects for the health of Social Security. He wrote on the Forbes website, “Unfortunately, as shown in table VI F1 of this year’s Social Security Trustees Report, Social Security’s 75-year red ink is only 36 percent of its $32 trillion infinite horizon long-term fiscal gap. This is the amount of money the system is short, not in 75 or 100 years, but today — this minute.”

He notes that this problem will affect people who are children today, who will be the Social Security recipients 75 years from now. In a 2015 interview for The New Mexican, Kotlikoff told me the problem is being foisted on baby boomers’ children and grandchildren.

Among other measures, Johnson’s proposal would eliminate the earnings test, which affects people who claim Social Security before their full retirement age. He also proposes replacing the Windfall Elimination Provision with a more fair system. The provision affects people who worked for a federal, state or local government agency and some nonprofit organizations. In those cases, workers may receive a pension, but their earnings were not covered by Social Security.

Those steps would help many people. However, Johnson also wants to raise the retirement age to 69 for people born after 1970. His plan also would eliminate cost-of-living increases for single people with incomes above $85,000 and married couples with combined income of $170,000 or more. These thresholds would rise with inflation.

Kotlikoff points out that this aspect of the plan has a major pitfall: It closely pegs Americans’ retirement income to something that the government has no control over — the inflation rate.

Finally, the new proposal would reduce spousal and divorced spouse benefits for higher income households. While that might sound good to some people, it would hurt many divorced women, in particular, who spent less time in the workforce while raising families.

For today’s boomers who might be planning on taking Social Security in the not-so-distant future, it’s worth monitoring how this proposal wends its way through Congress. In the meantime, boomers must carefully consider their decisions before filing for Social Security. It’s crucial to evaluate your benefit in the context of factors such as post-retirement tax rates; other income sources, such as pensions, 401(k)s, individual retirement accounts or work; your spouse’s benefit; and your income needs.

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