/* trackback code -- i added this */

Sunday, December 03, 2006

Plan on Fixing SS, But Leave Out Dunleavey

During last year's debate, a lot was written about Social Security's future and the problems the system faces. So it's unsurprising that there's little (nothing?) new in M.P. Dunleavey's page-B6 "Basic Instincts" column in yesterday's NYT Business section (entitled "Plan to Retire But Leave Out Social Security"). But in reading Dunleavey's column, I had a couple thoughts that I hadn't had before. I'll put those thoughts in my next post; before I get to them, let me dispense with a point of confusion that Dunleavey causes in building her column around the Social Security statement she recently received.

Early in the column, she quotes her statement and then comments thusly:
"Unless action is taken soon to strengthen Social Security, in just 11 years we will begin paying more in benefits than we collect in taxes," the letter said. "Without changes, by 2040 the Social Security Trust Fund will be exhausted.

Exhausted? I've been fairly pessimistic about the future of Social Security and tend to side with those who recommend not counting on those benefits when calculating one's retirement. But I thought the Social Security Administration itself might hold out more hope for its own future---let alone yours and mine.
This quotation is silly. First of all, there's no news in the supposed news, and it's hard to imagine that after last year's extended discussions on Social Security, anyone reading the inside pages of the NYT Business section on a Saturday could be unaware of the general fact that the Social Security system faces a shortfall years from now. Worse, though, is Dunleavey's apparent suggestion that without policy changes, Social Security will simply disappear ("tend to side with those who recommend not counting on those benefits when calculating one's retirement").

As I understand current law, if the trust fund cannot pay all benefits promised-by-formula, everyone's benefit will simply be scaled down to an amount such that the system remains solvent. Thus the relevant question is not when the trust fund will be "exhausted", but the fraction of promised benefits that the system will be able to pay when it is no longer able to pay all promised benefits. According to a May 2005 Social Security Statement, when the trust fund is exhausted "there will be enough money to pay only about 74 cents for each dollar of scheduled benefits." This is not good, but it's a lot closer to 100 cents than it is to 0.

Dunleavey does cite this fact much later in her column, but even then only to criticize the way promised benefits are presented. Her beef is that "the dollar amounts of the individual benefits printed in your statement and mine are still the full amounts." But if the statement reported the 74 percent figure, then there wouldn't be any exhaustion problem. Either there's a terrible problem or there isn't.

Dunleavey concludes as follows:
Many people stopped counting on Social Security as part of their planning long ago. But many others who still have their fingers crossed need to let go of the fantasy and make better financial plans. Trust me, I read it in my Social Security statement.
This conclusion seeks so to substitute dramatic effect for empirical relevance. I'm unsurprised to see someone make such claims. But I'm seriously bothered that it somehow wound up published in the NYT Business section. Shame on the editors.


Post a Comment

Links to this post:

Create a Link

<< Home