Guaranteeing Retirees' Social Security Benefits: An Important First Step Toward Reform

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Guaranteeing Retirees' Social Security Benefits: An Important First Step Toward Reform

September 27, 2005 5 min read
David John
Former Senior Research Fellow in Retirement Security and Financial Institutions
David is a former Senior Research Fellow in Retirement Security and Financial Institutions.

One of the most troubling aspects of the current debate about fixing Social Security has been reform opponents' attempts to scare senior citizens into believing that their benefits will be cut. Despite President George W. Bush's promise that the benefits of both current retirees and workers born before 1950 will not be changed, polls show that seniors are worried.


The fact is that fixing Social Security will not affect today's senior citizens. The program has more than enough resources to pay them full benefits for the rest of their lives. Congress can and should provide senior citizens with the assurance that they have nothing to fear from efforts to fix Social Security by guaranteeing their benefits in writing.


Legislation That Would Create a Guarantee

Legislation now before Congress would establish such written guarantees. Senator Rick Santorum (R-PA) has introduced S. 1750, which would create a legal right for current retirees and workers born before 1950 to receive their monthly Social Security benefit. This is the same age groups that President Bush has promised to protect from any benefit cuts in his Social Security reform effort.


The Santorum bill would require the Secretary of the Treasury to issue certificates to all current recipients of Social Security retirement benefits guaranteeing that they will continue to receive their monthly benefit and annual cost-of-living increases for the rest of their lives. Workers and retirees who are already receiving benefits would receive a certificate soon after the legislation is signed. And upon being approved to receive benefits, new retirees born before 1950 would receive certificates guaranteeing the benefits that were in effect at the time they retired, plus the annual cost-of-living adjustment.


Is This a Real Guarantee?

The guarantees would be real and legally binding: Congress will not reduce retirees' benefits. While current law states that anyone who meets the requirements to receive Social Security benefits has a legal right to the level of benefits for which he or she qualifies, the 1960 Supreme Court decision Flemming v. Nestor makes it clear that Congress can change anyone's benefit at any time. This guarantee would make that much harder to do. Congress has never before explicitly guaranteed each recipient's exact benefit level. Its failure to do so has made it easier in the past for Congress to erode the value of benefits paid to the elderly.


A written guarantee of benefits would encourage accountability and make it much harder for a future Congress to reduce retirees' benefits. Guarantees will allow retirees to compare the amount on their certificates with their monthly checks and be alerted to subtle changes in their benefits. While guarantees would not eliminate the possibility that a future Congress might pass legislation to reduce the Social Security benefits of those who have already retired, the explicit written nature of the guarantee would ensure that such a move would have severe political implications.


No Substitute for Fixing Social Security

While the Santorum legislation would help to ease the fears of senior citizens, it is not a substitute for fixing Social Security. The guarantees would not affect the trust funds, but they wouldn't make fixing the system more expensive, either. They would also not do anything to protect the benefits of younger workers. If the Santorum bill passes, Social Security benefits would continue to be paid through the trust funds, just as they are today. Once those trust funds run out in 2041, the benefits of today's younger workers would automatically be cut by roughly 30 percent. The only way to avoid these cuts would be for Congress to sharply raise taxes or increase borrowing. Since the youngest people eligible for guarantees will be 91 at that point, they would not be affected.


In addition to guaranteeing the benefits of workers born before 1950, Congress needs to consider soon legislation that will fix Social Security for younger workers. Today's Social Security has promised younger workers much higher benefits than it will be able to pay. The only way for these younger workers to achieve the same retirement security as their parents and grandparents would be to allow them to invest part of their Social Security taxes in an account that they could own. If Congress fails to take this step or others that will substantially improve Social Security, no options will remain other than reducing younger workers' Social Security benefits and raising taxes to backbreaking levels. For every year that Congress delays serious Social Security reform, the cost of fixing Social Security will climb by about $600 billion and the task of finding ways to keep the system's promises to future retirees will become harder.


Why Retirees and Those Born Before 1950?

Social Security is different from other government programs in that it promises workers an explicit level of monthly benefits upon retirement in return for their payment of a specific tax. The exact amount of benefits payable can be calculated only when a retiree's earnings record is complete and he or she has actually applied for benefits. Before then, any benefit predictions are only estimates. Actual benefit levels could change as the worker's annual earnings rise and fall. For this reason, guarantees cannot be offered to workers who are still in the labor force. However, workers approaching retirement age need not be worried if they do not receive the guarantees until they decide to retire. Those older workers would continue to receive an annual "Your Social Security Statement" that projects the benefits they could expect based on their earnings record up until that point.


The Santorum bill only covers current retirees and those born before 1950 because it would be extremely unfair to change benefits for workers who are already so close to retirement that they have little flexibility in planning their futures. This also mirrors President Bush's commitment to hold those workers harmless in his plans to deal with Social Security's coming fiscal problems.


Nevertheless, the proposed guarantees are not a substitute for fixing Social Security. They do not create assets that would be available to pay retirement benefits to younger workers. If a Member of Congress were to propose extending guarantees to all workers, including those born after 1950, it would be his or her responsibility to include a way to pay for those benefits in the same bill.



The current Social Security debate is not about today's retirees. Their benefits are assured. The people who need to be worried are the millions of younger workers whose benefits are guaranteed to be cut if nothing is done to fix Social Security. Still, opponents of fixing the program are quite willing to scare senior citizens as part of their efforts to block the kind of changes that would ensure that younger workers' retirement benefits are as secure as their parents' and grandparents' benefits. Congress faces a critical choice. It can assure the elderly that they have nothing to fear from Social Security reform by establishing written guarantees that their benefits will be paid, or it can allow them to be vulnerable to groundless worries. America's senior citizens deserve the peace of mind that a guarantee will provide.


David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


David John

Former Senior Research Fellow in Retirement Security and Financial Institutions