Social Security "Promises"

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There is still a lot of misconception out there about Social Security. It's complicated, so this is not surprising. But one thing that is very important to understand is the idea of whether a cut in the rate of benefit growth constitutes a reduction in benefits.

What is being proposed is indexing benefit increases to inflation, instead of to wages. Likely, this would mean benefits would increase (in actual dollars) more slowly, and would stay the same in real dollars (as that is the definition of inflation).

Democrats say, well, if nothing changes in the law, I will get $x in the year 20$yy, when I retire. Under this change, I will get less, so it is a cut.

Republicans say, well, but you will actually have the same amount of money in real dollars, and more in actual dollars: to call that a cut is nonsense.

Both sides have a point, but the Democrats are on the losing end here. Nothing in the law says that you will get $x in 20$yy. On the contrary, it stays away from such language, and covers only people who actually do retire under the law as it currently exists. It does not say you will get $x in 20$yy, it says someone retiring in 2005 will get $z.

When you see on your Social Security Statement that you will get $x in 20$yy, it is not a promise. It is not implied or expressed as such. It is an estimate, extrapolated from current law. There is bold language on your estimates page that says:

Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2042*, the payroll taxes collected will be enough to pay only about 73 percent of scheduled benefits.

So what is most accurate is that under this rate change proposal, the current benefit estimates will be reduced, and that benefits themselves will remain constant.

* For those following along most closely, the document also notes that the 2042 number is based on the SSA's intermediate assumptions, while the Democrats like to tout the most optimistic assumptions, which keep the Trust Fund solvent indefinitely, but also assume unreasonably low population growth, high mortality rate, etc. In any event, it is clear that this, too, is merely an estimate. Indeed, if the intermediate assumptions hold, and we do nothing as the Democrats appear to wish, then we would have likely have actual benefit cuts in 2042 -- forced by lack of funds -- instead of merely having rate cuts sooner.

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