Social Security could be big chill for 50-somethings By Susan Page, USA
TODAY
Mon Nov 28

Chuck and Kim Garwood of Peachtree City, Ga., are counting the days and
calculating the dollars until they can retire.

He's 57 now, an Army veteran who works as a consultant in industrial
safety. She's 48 and starting a part-time job in a small
financial-planning office. Once daughter Allison graduates from the
University of Georgia and the way is clear for them to stop working,
they plan to rely on Social Security for a solid 20% of their
retirement income.

The Social Security system "may change, and needs to," Garwood says.
But he's confident he'll be grandfathered in, so to speak, under the
current rules and benefits.

Or maybe not.

When President Bush proposed a Social Security overhaul this year as
the top domestic priority of his second term, he promised the changes
wouldn't apply to anyone 55 or older. But Bush's plan has gone nowhere,
and actuaries say demographics and simple arithmetic will make it
difficult to repeat that commitment in the future.


Americans who are 50-something - a point in life when many are
registering peak earnings, seeing their children move into the
workplace and beginning to make detailed plans for their retirement -
could be in for some unwelcome surprises down the road.


"Keeping that promise this year made our job much more difficult," says
Senate Finance Chairman Chuck Grassley, R-Iowa. "I don't see how you're
going to be able to have that rule of thumb three years from now."


Americans moving toward retirement wouldn't lose benefits entirely.
With no changes, payroll taxes would cover nearly 75% of current
benefits when the trust fund is exhausted. But policymakers who want to
keep the system solvent and protect low-income seniors could take steps
that would affect those nearing retirement or already the Trimming
benefits, especially for the more affluent. Reducing cost-of-living
adjustments. Subjecting more Social Security income to taxation.


Changes such as those become more likely for near-retirees as each year
passes.


For one thing, the task of fixing Social Security gets harder as it
moves closer to the time when it runs a deficit (starting in 2017,
according to the Social Security Administration) or exhausts its trust
fund entirely (in 2041).


For another, the number of people who are 55 and older is beginning to
swell with members of the baby boom generation - the bulge in the
population that helped create Social Security's predicament in the
first place.


There were 67.8 million people in the protected 55-and-older age group
this year. The Social Security Administration projects that number will
grow to 76.7 million in 2010 and 91.6 million in 2017 - and the number
of Social Security beneficiaries also will be rising. The oldest baby
boomers become eligible for early retirement in 2008.


"As you move forward in time, more and more of the baby boomers get
fully protected," says Peter Orszag of the Brookings Institution, a
think tank in Washington. "Past 2009, the bulk of the baby-boom
(generation) is falling under that protection, and it becomes almost
impossible to sustain that assurance."


A sobering response


"To me, there's just an incredible amount of uncertainty right now,"
says Katherine Watson, 50, a social worker and substitute teacher from
Bloomington, Ill. Retirement's uncertainties go beyond Social Security.
When her husband attended a pre-retirement session at the insurance
firm at which he works, a colleague asked whether the company was sure
to continue providing pensions and retiree health insurance. "The
response was 'no,' which sobered everyone in the room," she says.


For Garwood, last-minute changes could disrupt his careful
computations. He is a man of precision. Asked how long he served in the
U.S. Army, the retired lieutenant colonel responds: "20 years, seven
months and 20 days." When does he plan to start drawing Social
Security? In February 2010, as soon as he's eligible. He expects annual
payments of $15,000.


Military retirement will provide $35,000 of his planned $75,000-a-year
retirement income. He'll have income from the retirement investment
accounts he began in 1987 after a conversation with co-workers prompted
him to start saving.


Kim, nine years his junior, isn't eligible to receive his military
benefits. She would be more dependent on Social Security if he dies
first. "And she comes from long live-ers," he says; she has relatives
in their 80s and 90s.

The couple plan an active retirement. He participates in Ironman
triathlons. They want to bike across the country for a month in 2007
and to hike the Appalachian Trail in 2008. "I've been working since I
was in the seventh grade," Garwood says. Some of his friends talk about
wanting to work through their 60s and beyond, but he says, "I've had
enough."

He can't imagine that Social Security would change the rules for him so
late in the game. "I put the money in; I expect to take the money out,"
he says. "I don't see how that could happen otherwise."

Trade-offs: Old vs. young

That was pretty much the reasoning by the White House when it promised
to shield near-retirees from changes, according to Charles Blahaus, a
White House aide and an architect of Bush's Social Security plan. "If
you are in retirement or on the verge of retirement, you can't adjust,"
Blahaus says. "You've worked your entire life with a certain
expectation."

There's also a political calculation in the promise: Older Americans -
who happen to be the age group most likely to vote - presumably are
less likely to protest benefit cuts if the changes didn't apply to
them. "They're the people who are most aware of the issues," says
Evelyn Morton of the AARP, an advocacy group open to people 50 and
older. "(For) people who are younger ... 'tomorrow' means next week."

But four years from now, that protection for older workers could only
be offered at the serious expense of younger ones. Then, Blahaus says,
the increase in costs to protect those 55 and older would be equal to
the savings achieved from raising the retirement age by another year
for those coming up behind them. The retirement age already has been
raised to 67 for those who are now 45 and younger.

As for now, Bush acknowledged last month that his Social Security
proposal was moribund, though he promised he would continue to "remind"
voters about a problem "that's not going away." Grassley says the next
"bite of the apple" for Congress seriously to consider changes in
Social Security won't come until at least 2009, after the next
presidential election.

Grassley and other Republican leaders blame Democrats for blocking
action this year to score political points. Senate Minority Leader
Harry Reid and other Democrats blame Bush for refusing to put aside his
proposal to add individual investment accounts to Social Security. If
he had done that, they say, they would have been willing to discuss a
plan for solvency.

A few advocates still hold out hope for some action in the next year or
two. Republican Sens. Jim DeMint of South Carolina and Rick Santorum of
Pennsylvania are pushing for a proposal that would use Social
Security's current surpluses to fund individual investment accounts.
They're still waiting for a White House endorsement that would help
them build support in Congress. "No one wants to jump on a train if
it's not going anywhere," DeMint says.

The last big fix

In the past, big changes have been made in Social Security only when
the system stood on the verge of catastrophe. The last time Congress
acted, in 1983, the system was only months away from being too broke to
send benefit checks to retirees.

"It was hitting the point when the Old Age and Survivor Fund was
literally running out of money," recalls Steve Goss, chief actuary for
the Social Security Administration. "That's clearly not a world anybody
wants to move toward."

In that case, the steps taken affected not only near-retirees but also
seniors already on the rolls. Their next cost-of-living increase was
postponed for six months, and the following year up to one-half of
benefits was subjected to income taxes for the first time. For workers,
scheduled increases in payroll-tax rates were accelerated. A timetable
to gradually raise the retirement age to 67 from 65 was adopted.

The package embraced by President Reagan and House Speaker Tip O'Neill
was supposed to ensure the system's solvency at least until early the
next century - that is, until the baby boomers started to retire. That
is, until now.

Predictably, retirement is on the minds of people in their 50s. A USA
TODAY/CNN/Gallup Poll this month found that, among those 50 to 64 years
old, nine of 10 had done planning for retirement, though most worried
they hadn't done enough.

They're counting on Social Security. Three of 10 say the benefit checks
will be their main source of income. They are twice as likely as
younger people to expect Social Security to be their mainstay. Just 13%
say they won't rely on those benefits at all.

"I would hope it would be a quarter to a third of the pie for me, and
I'm guessing I'm pretty typical," says Mike Kornblum, 53, of Natick,
Mass. He advises companies on social responsibility and crisis
management. "It's a little like a cornerstone in a house. If you pull
it out, you don't want the whole house to collapse."

With one child out of college and a second halfway through, Kornblum
and his wife are contributing maximum amounts to 401(k) and IRA
accounts each year. He'd like to retire in 10 or 12 years. But he
wonders whether he needs to "cut back on my current lifestyle to
compensate for the possibility that the Social Security piece won't be
there at all, or will be there in a reduced way."

Ralph Petersen, 50, a tow-truck driver from SeaTac in Washington state,
says the small retirement investment account he had started was nearly
wiped out by the dot-com bust five years ago. He's found it impossible
to put much away since then. "I'm not quite living paycheck to
paycheck, but it's close," he says.

When does he hope to retire?

"Retirement? What retirement? I'm going to have to work until I'm dead
- that's reality," Petersen says. He's puts more faith in luck than he
does Social Security: "My only chance at retirement now is winning the
lottery."