What you need to know
- Munnell is director of the Center for Retirement Research at Boston College.
- She read the latest report from the Social Security Trustees and says that the new one is very similar to the old ones.
- One thing she noticed about the new report: Unusual things.
Social security will continue to pay pension benefits in 2035 even if its trust fund is depleted, but the cut in the amount would be huge.
That’s the assessment of Alicia Munnell, director of the Center for Retirement Research at Boston College.
Munnell, one of the best academic pension researchers in the world, says social security should receive enough payroll tax revenue to pay 80% of the currently promised benefits from current income in 2035 and about 74% of the promised benefits in 2096.
But the compensation rate, or the percentage of early retirement income provided by social security benefits, would fall off a cliff.
Today, the typical compensation rate is 38%.
By 2035, if Congress fails to act, the replacement rate will drop to 27%, Munnell warns.
Munnell has included that observation in one new summary of her reactions to the 2022 report by the Social Security Trustees.
What it means
For Munnell, the most important bid on the trustees report is that politicians know that Social Security has a 75-year deficit equivalent to about 3.5% of taxable income, and that trustees have known that for about 30 years.
The deficit “should be resolved sooner rather than later, to share the burden more fairly across cohorts, restore confidence in the country’s large retirement program and give people time to adapt to necessary changes,” Munnell writes.
For counselors and their clients, the income compensation forecast can be a way to convert vague fears of social security into an easy-to-measure gap to fill.
Elasticity, death and quirks
Here are three other Munnell reactions to the new trustees report.