Social Security's Poison Pill
NEW YORK ( MainStreet) Social security defenders, beware. America's most successful social program is about to phase in cuts that target those who can least afford it. And the cuts are doubly-dangerous: they allow entitlement opponents to further attack benefits under the guise of defending poor retirees.
Of course, the Congress isn't calling the cuts "cuts." It's muddying the issue by billing them as a shift in the full retirement age from 66 to 67 starting after 2020. But make no mistake: that change, which was approved by Congress in 1983, will result in a reduction of around 7% when fully phased in, according to a study from the Center for Retirement Research (CRR) at Boston College.
Even though a shift in retirement age might imply something different, people will lose 7% of their benefits whether they retire at 62 or 66 or 67 or 70. The impact of the cut is even across the board, because, as of 2008, Congress fully phased in the so-called "delayed retirement credit," giving people who retire after the full retirement age (but by 70) enough extra money each month so that their lifetime benefits would be the same as if they had retired earlier, the CRR study said. People who retire before the full retirement age (but after 62) have received the same average lifetime benefits as they would if they waited until full retirement age since the 1960s.
So who does this benefit reduction hurt the most? People who can't delay their retirement. They are the ones who won't be able to make up for the lost income by working a few years longer. The change will most impact people who have physical jobs, for instance, or people who are in poor health, targets who are likely to be lower-income. In other words, the most vulnerable are hit the hardest.
And that's a bad thing. Not just because of the obvious problems of taking social security away from people who need it, but because it opens the door to negotiating further benefit cuts.
"Constantly reducing benefit levels by increasing the full retirement age is very hard on those who cannot change their retirement date," the CRR's Alicia Munnell wrote. "If we want to cut benefits, it makes much more sense to directly change the benefit formula."
Get used to hearing that very reasonable sounding argument. And not just from organizations, like CRR, which have a track record of supporting retirement security. It's also likely to come from people who simply want an excuse to get progressives on board to gut the social security system.
Because after opening the can of worms of changes of social security reform - it's hard to imagine Congress making changes in the current political climate that wouldn't be even more harmful than the ones already approved. Lawmakers have been erratic recently, failing for years to pass a budget and shutting down the federal government for 16 days over a non-budgetary issue. And Democrats have been oddly eager to prove that they are fiscally responsible by calling for cuts to Social Security, once a Republican pipe dream, even when that will have no immediate budget impact.