Olivia Mitchell, a professor of business economics at Wharton, has warned her millennial children, now in their 30s, to lower their expectations about the Social Security checks they'll receive when they retire.
"They're going to have to work longer," Mitchell said. "They're going to have to save more. And they're going to have to expect less from the government. There will be something," she said, but the formula that's in place now won't be the same in the future.
Time is running out for Congress to solve the massive program's solvency problem. The Social Security trust fund reserves can pay out full benefits for current retirees until about 2033, a year earlier than previously expected, according to the latest calculations by the Congressional Budget Office. If Congress does nothing for the next decade, Social Security will only be able to pay out in benefits what it collects in revenues from payroll taxes, causing steep benefit cuts of about 25%.
But inaction seems to be a real possibility for now, even though changes to Social Security's funding would be less drastic if undertaken before the trust fund reserves run out. That was apparent during the standout moment from President Joe Biden's State of the Union address this year, when he criticized GOP Sen. Rick Scott's proposal to "sunset" Medicare and Social Security.
"I'm not saying it's a majority of you. But it's being proposed by individuals," Mr. Biden said, addressing congressional Republicans in the House chamber.
GOP Reps. Byron Donalds and Marjorie Taylor Greene responded with boos. Donalds protested, "We never said that!" And Greene yelled, "Liar!"
Mr. Biden seized the moment and declared, "So folks, as we all apparently agree, Social Security and Medicare is off the books now, right?" He was met with applause from both sides of the aisle. "All right. We've got unanimity!"
Soon afterward, Scott, who represents millions of retirees living in his home state of Florida, modified his original plan that would have let every government program — including Social Security and Medicare — expire after five years, unless Congress approves them again. Fellow Republicans viewed his proposal as too austere.
Proposals to make Social Security more sustainable for the future have resurfaced periodically, only to fade again. There has been some recognition in Congress that legislators must do something to head off major benefit cuts, but a way forward has yet to materialize.
But Scott isn't the only Republican senator who thinks it's time to address Social Security. In November, Sen. John Thune of South Dakota, the second-ranking Senate Republican, also suggested that Congress make changes to Social Security as a part of legislation to boost the debt limit. He floated the idea of increasing the retirement age. However, in the House, Speaker Kevin McCarthy has said Social Security won't be on the chopping block during the ongoing debt ceiling debate.
But 2024 potential hopeful and former Vice President Mike Pence last week said Social Security has to be on the table "in the long term."
"We all know where the real issue is in terms of long term debt for the United States," Pence said on CNBC. "And that is, that, while I respect the speaker's commitment to take Social Security and Medicare off the table for the debt ceiling negotiations, we've gotta put 'em on the table in the long term, and right now, President Biden's policy is insolvency."
Experts agree refusing to do anything could have catastrophic consequences. Maya McGuinness, president of the bipartisan Committee for a Responsible Federal Budget, bemoaned the "ongoing flurry of political cowardice" from both parties "where instead of telling people truth — that changes will have to be made — they are continuing to demagogue the issue."
Jason Fichtner, vice president and chief economist of the Bipartisan Policy Center and former acting deputy commissioner at the Social Security Administration, expects Congress to do something.
"No one expects Congress to allow this to happen," Fitchner said, in response to the suggestion that Congress might do nothing before the trust fund is depleted.
Here are some of the options Congress has:
The minimum retirement age is currently 62. People who retire at 62 will receive a monthly benefit for the rest of their lives that is substantially lower than those who wait longer to retire. The full retirement age was 65, but changes to Social Security made in 1983 took into account the fact that Americans were living longer. Congress included a gradual rise in the retirement age, beginning with those Americans born in 1938: they reached full retirement age at 65 years and two months. And full retirement age will keep increasing gradually — up to the age of 67. But some experts now think the age to receive full benefits should be adjusted upward again, perhaps to 70 or older.
Democrats are opposed to increasing the benefits age because they view this as a benefit cut, which in a way, it is, Fitchner conceded. But people are living longer, and people who can work longer should be encouraged to stay in the workplace longer, he said.
The payroll tax, which goes to Social Security and Medicare is 15.3%, and that tax burden is evenly split evenly between employers and employees. Some have proposed increasing that tax by up to 2 percentage points.
Other experts suggest tying Social Security payment increases to the chained consumer price index (CPI), rather than the regular CPI that's currently used to calculate the rate of inflation. CPI measures the change each month in what urban consumers pay for a market basket of goods. Chained CPI is more nuanced — it takes into account that when prices go up, people change their buying behavior. McGuinness cited the example that when the price of apples goes up, but the price of pears stays the same, people may buy pears instead.
Using chained CPI would result in lower inflation rates, which would keep Social Security payments lower and extend the life of the trust fund.
One proposal from left-leaning Sens. Bernie Sanders and Elizabeth Warren that the two recently reintroduced would lift the cap on income that's subject to Social Security taxes. Currently, the maximum earned income subject to the Social Security tax is about $160,000. Their legislation would apply a 12.4% tax to all income above $250,000 per year, including capital gains — not just income from employment.
Many of the nation's wealthiest earn the bulk of their income through investments rather than salaries, and the current payroll tax only applies to salaries. Sanders and Warren argue their plan would make Social Security solvent for the next 75 years.
The cap could be nixed entirely, or set at $400,000, McGuinness said. Still, it's a less effective option than it would have been in the past.
"If we had lifted the payroll tax cap years ago it pretty much could have solved the entire problem," McGuinness said. "Now it will only solve about two-thirds."
However, there is almost certainly no way that this significant tax hike could be passed in the next two years, especially since the House is controlled by Republicans. And not all Democrats would support this idea either.
Another option — and one that would require a significant legislative overhaul — would entail raising revenues from another source. One possibility is through taxing carbon emissions, Fitchner said. He argues that a revenue-neutral carbon emissions tax would be better for the economy and for the environment than increasing payroll taxes, which could affect employment and economic growth.
Taxing carbon emissions could even finance an add-on, completely optional Social Security private retirement accounts, he argues. A revenue-neutral option that would allow for people to invest in private retirement accounts is one of the multiple options the commission Mitchell served on in the early 2000s proposed.
Another option is taxing financial services at a very low rate, Fitchner suggested. When people sell a stock, they pay a very small percentage that goes to the Securities and Exchange Commission. It could be pennies per transaction. But tacking on a very low tax on stock sales could make a measurable difference, Fitchner argues.
This option is straightforward. Decreasing the benefits current and future recipients receive will help address the solvency issue. It's unlikely to get much traction at least in the short term because it's too politically toxic, although if the cuts were small and combined with other measures, it could be part of a solution.
Mitchell, who is also a former member of a federal bipartisan commission to strengthen Social Security, said a combination of the options is probably the best way forward because it would not unduly burden a single generation.
"There's no right or wrong when it comes to fixing Social Security other than delaying making those changes, which is really an abdication of responsibility," McGuinness said.
If Congress had done something 10 or 20 years ago, the solutions now wouldn't have to be as drastic.
"This is a problem we have known about for decades," McGuinness said. "And our constant failure to act has really jeopardized the people who rely on the program the most."
But it's better to act now than to wait. "The decision's going to be worse tomorrow, not better," Fitchner said. "... That's gonna cost us more tomorrow."
The short answer, according to these experts, is yes.
"Assuming we're still around, Social Security will be around," said Fitchner. "It will be there for you," Fichtner said. "The question is, how much?"
Social Security probably won't pay as much as it does to beneficiaries now, the taxes will likely be higher, and workers will likely need to retire later, the experts noted.
"The answer is that Social Security will be around for our children and grandchildren," Mitchell said, "but the benefits will probably be lower than under the current scheduled formulas and the taxes will probably be higher."