With the Money Running Out Fast, Jack Svahn Spells Headache S-O-C-I-A-L S-E-C-U-R-I-T-Y
At age 46, the U.S. Social Security system is not weathering the years gracefully. It currently distributes about $12 billion in monthly checks to some 36 million Americans. But despite a massive payroll-tax boost enacted in 1977, the system still managed to run up a $3.3 billion shortfall last year. Now there are new warnings that the system’s largest trust fund could go broke by the second half of 1982. To help the troubled system, senior citizen Ronald Reagan, 70, earlier this year proposed a number of reforms—notably affecting early retirement and minimum benefits—and stirred up a firestorm of protest. (Reagan’s own salary makes him ineligible to receive benefits.) This week Congress returns from its summer recess to debate the increasingly emotional and politically sensitive issue. Charged with shaping the Administration’s legislative proposals on Social Security is Jack Svahn, 38, commissioner of the 83,000-employee agency and no stranger to controversies. As California’s director of social welfare under then Governor Reagan, Svahn was the architect of Reagan’s cost-cutting reforms. He moved to Washington in 1973 and managed a succession of programs at HEW during the Nixon and Ford administrations. Svahn admits that his present assignment has cut into his favorite pastime of sailing on the Chesapeake with his wife, Jill, and their two children, Kirsten, 10, and John, 7. He gave his views to PEOPLE’s Bill Earle on what must be done to keep Social Security not only afloat but on course for the next century.
Briefly, what ails Social Security now?
There are three trust funds: one for retirement and survivors’ benefits, one for disability payments and one for the hospital insurance share of Medicare. Each gets a part of the 6.65 percent payroll tax paid by both workers and their employers. The retirement fund is the one that’s now in trouble. Disability and health insurance are making a little extra. But when you combine all three, we’re spending about $12,400 a minute more than we’re taking in. We face a shortfall of some $100 billion over the next five years.
Why has this happened?
We have a population that is living longer and, in many cases, retiring earlier. In 1950 we had 16 workers for every beneficiary; today we have 3.2 to one. Another factor is that benefits are indexed to prices. A 1 percent rise in the Consumer Price Index leads to a 1 percent increase in benefits. These payments went up 65.2 percent since 1975. Among other elements is the problem of unemployment. Each percentage point of unemployment costs the trust funds $2 billion in uncollected revenues annually.
Could the system just collapse?
I don’t think so. I firmly believe the President and Congress will act now to make sure the system continues.
How would you reform the system?
Well, you reduce future benefits or you reduce groups of beneficiaries. We have concentrated on maintaining the basic benefit structures while dampening future benefits. One thing that has to be done is to encourage people to work longer. Several of our proposals are geared to encouraging people to continue to work past the early retirement age of 62. Early retirees would get only 55 percent of the amount they would draw three years later.
We should cut some obvious inefficiencies. The disability program is a major one. We’re finding that 20 percent of the people currently receiving benefits aren’t disabled. They’ve recovered but they’ve stayed on the rolls. Last year periodic medical reexaminations were made a legal requirement. We need to tighten eligibility standards. More than one-third of medical disability awards for persons aged 60 to 65 have involved consideration of nonmedical factors, such as poor job skills which prevented retraining. We also will save a billion dollars yearly by eliminating the $122 minimum monthly payment for people covered under federal, state and local government pension plans. These people have, in fact, been getting a windfall.
Why don’t you just raise payroll taxes or dip into the general revenue?
Since they’re both inflationary, I don’t think either is the answer to the problem. There is a kind of balanced budget built into the system: We’ve got to have the money in the funds to pay for benefits. Without that fiscal discipline, there’s no requirement to look to see whether we’re operating the program as it ought to be working.
Why is Social Security so sensitive?
There is a myth we’ve developed in this country that Social Security is the national retirement system and that it ought to maintain us at a middle-income level throughout retirement. That’s unrealistic. It was always intended and has always been funded as a partial replacement for wages lost as a result of retirement, disability or death. That’s all.
How should Americans prepare for retirement?
They ought to pay more attention to private pensions and savings. There was a time when everybody saved a nest egg. We don’t anymore.
What’s in store for the baby boom generation retiring in the next century?
A person coming into the system today is going to pay something like $335,000 into Social Security. That’s already a big chunk out of a worker’s income. But at some point in the 2020s the ratio of workers to beneficiaries will be down to just 2 to 1. That’s why we have to act soon to dampen the soaring costs of Social Security.