Journal Title George Fox Journal Online

Point of View

"Does Social Security have a future?"

by Tom Head
image of Tom Head

Contrary to what some may believe, Social Security is not on the verge of collapse. Like any large and complex system, it requires maintenance and fine-tuning, but this can be accomplished in a timely fashion and without undue burden to society.

We can and should preserve this predictable base of family support for workers leaving employment because of retirement or disability. As one of three tiers of retirement planning, this basic component provides inflation- adjusted monthly income that cannot be outlived by the recipient. The other important components for most retirees are employer pension plans and personal savings.

It is especially important to understand that Social Security is not, in any conventional sense, an investment, and so it makes little sense to estimate earnings or rates of return. Such talk is confusing and potentially deceptive. Social Security participants do not have individual ownership of financial assets, nor do they have accounts that are subject to the costs and risks of individual ownership. Social Security works much more like insurance than investment.

Thinking about Social Security as a form of insurance gets us much closer to the truth of what the system is and does. For example, when we purchase insurance to cover the costs of health expenses, damage, theft, or lost income, we are pooling resources with other people in order to provide a predictable outcome under unknown and adverse conditions. Social Security does exactly this. If you work for a lifetime, you are not left stranded and penniless, no matter how poor your choices or unfortunate your circumstances. Most of us want more than this insured minimal income — remember, it is only one of three tiers of good retirement planning — but the fact that a solid base is there has been a tremendous improvement upon an approach that left the elderly and disabled unprotected.

Historically we have managed Social Security prudently. This does not mean that we can ignore the need for modifications today. If we did absolutely nothing in the coming years, we might very well be in crisis 30 to 40 years from now. But a crisis need not occur. With relatively minor adjustments, we can achieve sustainable actuarial balance.

While this topic is too large for a onepage essay, I will summarize a few crucial elements for designing good public policy: ÃWe should acknowledge that Social Security works. It is a fundamentally sound system and can remain so in perpetuity if we make sober, prudent, and routine adjustments. We should reject frenzied and panicky thinking.

  • We should acknowledge that one of the key challenges to Social Security’s sustainability comes about because people now live longer. Longer life spans require longer payouts, and thus some combination of lower benefits and higher taxes is needed to maintain solvency. This is not a catastrophe but is instead the by-product of improvements in our well-being.
  • While the basic idea of Social Security is rightly a subject of political debate, we should remove a lot of the detailed decision-making from the political arena. I would favor establishing a non-partisan agency like the Federal Reserve to oversee the actuarial fine-tuning of Social Security within the bounds of congressionally determined parameters and oversight. We should not require an act of congress every time life expectancy tables change.
  • We should forget about personal accounts as part of Social Security. Creating personal accounts would be a self-defeating modification; it would not solve the problems we now face and is likely to make them worse. But we should continue to affirm private savings as an important complement to Social Security and pensions.

Our challenge today is to see clearly what Social Security has achieved for the American worker, and, based on an accurate understanding, implement calm and measured adjustments assuring its sustainability.


Tom Head is professor of economics and chair of the international studies department at George Fox University.

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