Jason J. Fichtner is Acting Deputy Commissioner of Social Security and Associate Commissioner for Retirement Policy at the Social Security Administration (SSA). In these roles, Fichtner serves as the Principal Deputy for the SSA and is responsible for executive leadership in the development and execution of economic policy for SSA.
This is an edited transcript of an interview conducted February 19, 2009.
*Update: On May 12, 2009, the Obama Administration reported that the Social Security trust fund will be exhausted in 2037, four years earlier than predicted.
What, if anything, should be done now to protect and ensure the solvency of social security funding?
There are several ways you can talk about reforming the system. Now, we at Social Security don’t deal with the policy of reform; that is actually the privy of the White House or the Office of the Secretary of the Treasury, and the Treasury is the managing trustee for Social Security trust funds. But there are several options that you can throw around. One is raising the retirement age. Currently, for those born after 1960, the full retirement age is 67. People are living longer, obviously; when the program was designed, people weren’t living as long as they do now, so you can readjust the age of retirement to take into account the difference between mortality and life expectancy. That is one way to do it. We also could raise taxes to cover the shortfall, or you could reduce benefits. You could change the formula so the benefits aren’t the current structure they are now.
Another option would be raising the income tax that presently exists.
Right now, you pay Social Security in payroll taxes up to a certain maximum level of income and above that you don’t pay anything. So for 2009, the cap is $106,800. So for earned income between $1 and $106,800, you pay Social Security payroll taxes. Above that, you don’t. In 2008, that figure was $102,000, and we adjust it every year based on the average wage growth in the economy. So in 2010, it will be higher and 2011, it will be higher, etc. So individuals right now are taxed on their earnings up to $106,800 for 2009 — it is called the taxable maximum. One of the reform plans being tossed around is to get rid of that taxable maximum, so any earned income, whether it is $1 or $110,000 or $250,000, is taxed at the payroll tax rate. In the 2008 Trustees Report, for the first time, if we had eliminated the payroll tax maximum, it would have solved the Social Security trust fund and imbalance over the 75-year horizon; just by doing that alone.
I understand there are two ages at which most people retire these days, 62 and 66.
So the way the system works now is you have your full retirement age, which is based on the year you were born. For people who are retiring today, that age is 66, basically, but if you were born after 1960, the age is actually 67. But you can claim benefits early as age 62. With that, you get a reduced monthly benefit amount. So for example, if your full retirement age was 66 today and you are scheduled to get a benefit, let’s say you would receive around $1,000. If you decide to retire at age 62, you’d get a reduced benefit amount of a little over $700, which would be your monthly amount for the rest of your life. If you wait until age 70, you’ll get delayed retirement credits. That monthly amount would actually be about $1,300. So you get a higher benefit amount for waiting, but the important thing to consider is it is an individual choice.
What else should people be thinking about when they are starting to talk about Social Security?
The things to consider: How long do you think you are going to live— your mortality, your health, your spouse? Do you have other sources of income in retirement? Are you getting a pension? Do you have 401(k) assets? And how much do you think you will need to live off of for the rest of your life? And it is important to remember that with Social Security benefits, while they are indexed for inflation, they are supposed to be actuarially fair. So it doesn’t really matter whether you claim earlier or later, based on the average life span, the total pay out will be the same.
You work with really big numbers. So something that would cause a newspaper headline, probably doesn’t even make a ripple inside the administration.
We actually take our jobs very seriously here, and we have very dedicated employees who do care about this country and our citizens. And we’ve actually started, under Commissioner Astrue’s leadership, a Financial Literacy Education Campaign, because as you can tell just by sitting here talking with me, these benefits are very complicated. The rules for when you should apply, what are the benefits, how does it affect your spouse, how long might you live, what is the benefit amount, does my spouse get something as a survivor on disability, does that work for widows, are just some of the many questions that need to be considered. There are so many things going on and it is so confusing, so we are making an effort here to make that information more clear for our citizens so they can make better informed decision about their own personal circumstance, about when to file, for example, and so this campaign includes inserts in annual Social Security statements.
For those who are working, when they turn 25 or older, every year they get an annual statement from Social Security. It also shows a worker’s earnings history. And we are putting targeted inserts in the annual statement for those who are 25 to 35. Starting next month, they are going to receive an insert about the importance of saving. And for those who are 55 or older, they get a one-page double-sided insert with the things you need to consider as you approach retirement.
I find it very interesting that Social Security will now be encouraging younger people to save toward their retirement. What kind of recommendations are you making?
We are sort of following the same lines that all financial planners say: start saving early and save as much as you can. But it is important to recognize that saving early makes a big difference and the power of compounding is important. Even as little as $5 a week could make a big difference for people who start off young in their first jobs. And also, if your employer has a 401(k) program, make sure you have signed up for it, especially if they have a matching program. Take the benefits of the match.
Social Security was never intended to provide 100% of what people need for their retirement, was it?
Social Security was designed to replace about 40% of your income in retirement. So that’s the replacement rate that was targeted. But for a lot of people now, Social Security is becoming much more valuable in replacing a lot more of their income.