woody_zimmerman_118_2007When I was growing up, during the 1950s, I frequently saw full-page ads in magazines like Life and The Saturday Evening Post that pictured a handsome, young-looking couple standing in front of a Florida-style house. The ads were titled “How I Retired After 15 Years on $300 a Month.” It explained how to accumulate enough funds to produce an income of $3600 a year, and where a couple could live on that income. Even in the nifty 50s, $300 a month wasn’t a lot, although with very low taxes and no work-expenses this income might have been adequate in some locales.

Most Americans at that time had never experienced high inflation. Indeed, the Great Depression featured “deflation,” as prices and wages fell significantly from levels of the 1920s. Although prices went up after the wage/price-controls of World War II were lifted, things settled down to a fairly even keel in the ‘50s. Many families lived on incomes of $100 a week. Taxes were low (at those incomes), gas was cheap (20¢ a gallon); a new Chevy cost about $2,000, and state college tuition ran about $150 a year.

In retrospect, it was perfectly reasonable for ordinary people to expect prices and incomes to remain at those levels for the foreseeable future. Only educated economists – and certainly not all of them – could have anticipated future inflation that has pushed prices and incomes of today to ten or twenty times what they were then. Over intervening years I often wondered what became of those people who retired in the 1950s on a monthly income that would hardly make a day’s pay for most families today. If some did, I hope none is a homeless or destitute old person today. The thought is depressing.

During those same years, my mother’s parents retired and came to live with us in our 3-story row-house in Allentown, PA. The gigantic place had ten rooms, including five bedrooms, plus a cellar. My parents paid $8,000 for it in 1951. We were a family of five children, so the added grandparents made 9 of us living there. (For many years we had only one old-fashioned bathroom for all those people. There was no shower; baths were necessarily of very short duration.) But I digress...

My grandparents retired under the 1950 amendment that extended Social Security coverage to farmers. After contributing perhaps $100 in FICA tax after the amendment was enacted, they were able to retire in late 1952 on a pension of about $100 a month. This was a great boon for them, as they had very little in savings and they didn’t own the farm they had worked since 1924. Without my parents’ help, they would have been very hard up.

Yet their experience demonstrates how the Social Security System reached its present condition. My grandfather died in 1959; my grandmother lived until 1971. Between them, they drew some $30,000 in benefits in exchange for that $100 in “contributions.” (Not a bad return.) No doubt they needed the help. But how could the Social Security Trust Fund survive such abuse? Obviously, it could not, as we can see today.

Somewhere between these two retirement extremes of the 1950s lies the reality of retirement today for millions of people not covered by lavish government pensions or millions inherited from a rich uncle. I am not the first to note that the data clearly show that Baby Boomers – who will retire by the millions each year, for the next 20 years – have not saved anything close to the funds necessary to support them in the style they’re accustomed to. Those who have saved are earning practically nothing on those savings, with interest rates currently near zero. Investors in the stock market have seen their savings degraded by poor market performance in the last 4 years. It is a grim time to be contemplating retirement.

It’s not hard to see that these people will tolerate no reduction of expected Social Security benefits. This sets the stage for the mother of all political shootouts between taxpayers – resistant to paying any more than the current 12.4% tax – and beneficiaries, who will demand payment of every penny promised.

The Social Security Trust Fund is still growing, even though the number of FICA-paying workers has dropped from expected levels, due to the recession. The Fund’s assets – all in government IOUs – are close to $3 trillion. Experts predict that the system will reach the “Crossover” point – i.e., when current payroll taxes will no longer cover current benefit payments – around 2018. At that time, the Trust Fund will no longer be growing, but will have to be tapped to cover the shortfall each year.

Within another 20 years after the Crossover – right around the centenary of the Social Security – the Trust Fund will be completely exhausted, barring any unforeseen change in population demographics or tax-levels. At that point, actual benefits paid – not just promised benefits – will have to be lessened, or else payroll taxes will have to be raised to cover payment of full benefits to current and future retirees.

Among the chattering classes, theories abound regarding possible solutions to the looming crisis of this relic of the New Deal. One of these is the idea of denying earned retirement benefits to those who “don’t need them” – at best, a very subjective judgment. I hope this goes nowhere, as it does violence to the most basic American principles of justice and fairness. It would also incentivize irresponsibility: i.e., why save anything for retirement if it looks like that might deprive you of pension benefits you’ve paid for?

There is also wild, uninformed talk of raising the retirement age to 70 or even 75. Most people voicing these proposals are nowhere near those ages, so they really don’t know how the body and spirit feel then. From more proximate age-experience, I can tell them (and my readers) that they have no idea what they’re talking about. Despite all the magazine articles showing youthful 70-somethings hiking, water-skiing, bungee-jumping, and quaffing wine on the veranda, you’re not the same after 65 as you were in your 40s. Time is a cruel master.

Yes, you see news items about a 95-year-old doctor still practicing, or some other superannuated worker still plying his (or her) trade. But we know about these cases because they are unusual, not because they are representative. The vast majority of people will not be able to do this. The body and the spirit simply will not permit it. Policy should never be made on the basis of 6-sigma data-points.

My mother got a late start in her working career, so she intended to work to age 70 to build up her federal pension. This proved impossible, as she weakened under job-performance pressures. Finally, she became ill and was compelled to retire at age 67. Much later, she confessed that she fell asleep at the wheel of her car one evening while waiting for a traffic light to change. She awoke to find that her car had drifted into the busy intersection as she dozed. Car were whizzing past, tooting their horns. Only a kind Providence and vigilant drivers spared her from a serious accident. (Mom died last year at age 88.)

Age-discrimination is rarely considered in proposals to raise the retirement age. Many imagine that laws will prevent this, but the reality is otherwise. Employers will not hire people beyond a certain age for some jobs. They want bright, energetic young salespeople. They want good-looking young women for receptionists. Other jobs require strong young men. Men in their late 60s or 70s will not be changing car-tires, climbing roofs, or hefting heavy boxes and bales. Many jobs also need young people who can hear. Diminished hearing is the bane of many older people, including yours truly. (What did you say?)

Some people in white-collar professions might continue working to great age, but even this doubtful. The dismal truth is that you get so tired once the odometer hits age 60 (or 65), and it’s much harder to answer the alarm clock morning after morning. I speak from experience on this. I retired at age 60 partly because I could and mostly because I couldn’t punch the “heavy bag” any longer. I had been working at one job or another since I was 12, and I was just plain worn out.

I considered it a triumphant, joyful day when I was able to walk out into the sunlight under my own power – arm-in-arm with my wife and my son – instead of being carried out, as some of my colleagues were. Part of wisdom is knowing when it’s time to lay down the tools. I’m glad I knew when that was, and I hope others have the same opportunity to make that same decision. In some European countries you see old people picking up trash and sweeping the streets. Others sit at public restrooms collecting coins from users of the facilities. I hope I never live to see any of that here.

It’s true that some Social Security beneficiaries have drawn benefits far out of proportion to what they paid in. I hope they all needed them as much as my grandparents did. Certainly some abuses have occurred. Yet many people paid in for years, only to die before drawing a farthing in benefits.

Mistakes undoubtedly were made from the start on the Social Security, but the system’s biggest problem is the diminishing ratio of workers to retirees. In 1950, that ratio was 16 to 1. Currently it is 3 to 1. Within a generation it will be 2 to 1. Part of the reason for this is the abortion of 50 million American children over the last 40 years. At least half of those children would be paying FICA taxes right now, putting the system on much firmer footing. Their absence has contributed to one of the greatest financial problems in the country’s history. I doubt if anyone anticipated abortion when the Social Security was enacted in 1935. Some sins have surprising and far-reaching consequences.

There are ways to release the country from the crushing burden of the future Social Security crisis, but they will have to be studied very carefully to ensure that the cure is not worse than the disease. It took us 75 years to reach this point, so we won’t solve the problem overnight.

Above all, the solution must be just, and it must be seen to be just. Lincoln once said (on another matter) that we must appeal “to the better angels of our nature.” Let’s hope we do on this problem.