Social Security can be fixed — here’s how

Imagine you’re running a business and you have an unsustainable amount of debt. What do you do? You fix it by re-negotiating terms and making internal changes to better service it. Difficult and possibly unfair decisions will be made. But that’s what you need to do to stay solvent. Your lender doesn’t want to see you default. Neither do you or all the people that rely on your business for their livelihoods.

According to the Congressional Budget Office, our Social Security system is approaching insolvency. It will be unable to meet its debt obligations by 2033. If a business manager faces that looming problem, we take action. To us, this is a troubled debt situation. And like any similar situation, it can be restructured. How?

For starters, and like any similar trouble debt restructuring, both lenders and borrowers would need to agree again on what the financing is for and how debt maintenance will be accomplished.

In Social Security’s case, it’s an insurance safety net for those who truly need it. Which means that, to service the restructured debt, the recipients who don’t need it shouldn’t get it. If the government refinances this debt by re-focusing it on only the people who need it (by showing proof, like tax returns, bank statements and other documentation), then Social Security becomes a true safety net and not a bonus check. And debt maintenance becomes much more manageable.

It’s estimated that as many as 3.5 million households in this country have at least $5 million in wealth, and 1.5 million households have more than $10 million saved. At $40,000 per household, eliminating Social Security for these people could save up to $140 billion per year — that’s a good start.

“In a true insurance model like this, retired Americans with healthy income from assets would get no Social Security check at all, rather than getting the largest checks as they do today,” writes Stuart M. Butler at the Brookings Institution. “If Social Security is seen as insurance against financial insecurity then Warren Buffet clearly doesn’t need a check. Nor do other older Americans for whom a monthly Social Security check is just a little bit more icing on an already rich cake.”

The next thing a finance expert would do is put a cap on the debt. So, for Social Security, it makes sense to cap its liability – benefits for the remaining recipients – going forward.

According to a recent Wall Street Journal editorial “the maximum benefit at the normal retirement age of 67 comes in at $42,238 in 2023,” which “blows through any reasonable idea of a safety net: It’s more than three times the federal poverty threshold and about 5 percent higher than the median employee’s salary in the U.S. It’s also two to three times higher than the maximum benefit paid in the United Kingdom, Canada, Australia and New Zealand.” 

Capping this liability would have an enormous impact on debt maintenance. Assuming that everyone still gets Social Security, the Journal’s analysis finds that if every senior instead received a benefit equal to the 2022 poverty threshold – which is just over $14,000 for a single retiree and about $17,600 for couples – then the system would save about $1.3 trillion in 2023 alone, which is almost half that year’s obligation.

The next and final step to restructuring this debt is another common tactic: extend its terms. This is done by raising the retirement age. The French government recently announced an increase to its retirement age eligible for government benefits from 62 to 64 by 2030, with a minimum of 43 years worked to get a full pension. In the U.S. the minimum age to receive Social Security benefits is 62 with full benefits at 67 and incentives to delay until after the age of 70.

But these ages were determined decades ago, when lifespans were much lower. Today, the average person in the U.S. lives to the age of 76. In 1960 it was 70. People are living and working longer and need less of a safety net than before. Of course, there can be extenuating exemptions for sickness and other health-related issues.

But by doing so, argues The Hill contributor Joseph Chamie, “it would address Social Security’s expected insolvency, compensate for increased longevity and expand the size of the labor force. It would also provide more time to save for retirement, preserve intergenerational equity and provide larger monthly benefits to retirees in old age.”

Are any of these steps easy? No, of course not, otherwise businesses would be restructuring their debt all the time. People will complain because the terms have changed. Many will say it’s unfair because they’ve paid in their contributions over the years and are now getting less, or nothing at all. Like in France, protesters will run into the streets to voice their opposition over having to work harder and longer.

But we’re all going to have to deal with some level of unfairness. That’s how it works in these cases because everyone has to sacrifice something for the common, long-term good of the organization. And isn’t the long-term good all about taking care of people who are truly in need?

Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.