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The Ins And Outs Of Obama's Social Security Plan


One of the big issues when it comes to the debate over U.S. budget woes is entitlement reform. Earlier this month, President Barack Obama sparked controversy when he included a proposal in his budget that would slow the growth of Social Security payments. The idea was an olive branch to Republicans, who say entitlement spending must be reined in. But liberal Democrats argued, if anything, Social Security benefits should be more generous, not less. A lot of young people are worried that Social Security won't even exist by the time they are ready to stop working. In a moment, we'll talk with the financial planner about how younger workers should plan for their retirement. But first, NPR's Scott Horsley joins us. Hi, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Rachel.

MARTIN: OK. So, polls show widespread skepticism about Social Security's future, especially when it comes to young people, as we mentioned. Are they right to be worried about this?

HORSLEY: The Social Security does have a problem. The program is paying out more every year than it collects in taxes. And as more and more baby boomers retire and start drawing on Social Security, there will be fewer workers paying to support them. But that said, of all the fiscal problems we face in the country, this one is probably the most manageable. There's enough money in the Social Security Trust Fund to keep paying full benefits for more than 20 years. So, none of this is to say we should do nothing to fix Social Security but the fixes that are needed are fairly small and doable.

MARTIN: So, one of those fixes, as I understand it, from the president, is a new measure of inflation that would result in smaller cost-of-living adjustments for Social Security beneficiaries. Would that help?

HORSLEY: Well, this is a partial fix. The idea in the president's budget would be use a different measure of inflation that does produce slightly smaller cost-of-living adjustments. In any particular year the change is not very different from what we're doing now, but over time those changes add up. So, people who live a long time or young people who are still many years from retirement would have the most to lose. And even if this plan's adopted, it would only shrink the funding gap in Social Security by about 20 percent. So, there's some other ideas out there.

One is to gradually raise the payroll taxes that both employers and employees pay. You could also lift the cap on earnings that are subject to tax. Right now, wealthy wage earners only pay Social Security taxes on the first of about $113,000 of income. If you said all of your paycheck is subject to Social Security taxes, that would close the funding gap by about 70 percent.

MARTIN: There are critics, though, who say it's a mistake to limit cost-of-living adjustments because the benefits are pretty modest. Does the White House have a response to that?

HORSLEY: Well, one thing they say is the idea of this cost-of-living change was not the president's preferred solution. It's something he put in his budget as sort of a concession to Republicans. And the president does insist on some special protections for the oldest Social Security recipients and the poorest. But here's something to keep in mind. Last year, the average Social Security benefit was just over $1,260 a month. That's a little over $15,000 for the year. So, it's a very important lifeline for a lot of people. But if you are a young person, it might be wise to think of Social Security as an ingredient of retirement income but not the whole enchilada because the payments are not that big.

MARTIN: NPR's Scott Horsley. Thanks so much, Scott.

HORSLEY: Good to be with you. Transcript provided by NPR, Copyright NPR.

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