Gary Koenig of the Urban Institute breaks down Social Security’s solvency challenges, what lawmakers can learn from past fixes (1977 & 1983), and practical policy ideas to strengthen retirement security — from expanding coverage and emergency savings to boosting lifetime income through delayed claiming, annuities, and supplemental transition accounts. Watch for clear explanations of the hard trade-offs ahead and why action before the trust fund exhaustion matters.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now, Gary Koenig is an independent consultant and non-resident fellow at the Urban Institute. Gary, it’s always great to see you.
Thanks for joining us in the program this morning.
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
I really appreciate you having me on.
Jeffrey Snyder, Broadcast Retirement Network
And there’s a lot to dive into. We’re going to talk about retirement policy. I thought though, Gary, it’s come up so many times in the mainstream press, social security, the trust fund, we need reform, it’s going to go bankrupt, they’re going to cut benefits.
Where do things stand today and what are some of the proposals to fix social security?
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
So as you know, social security has financial challenges and this is nothing new. This has been known for decades and Congress has not acted. This should not surprise anybody.
I mean, trust fund has grown because of surpluses for many years. Those surpluses stopped in 2010 and there hasn’t really been an incentive for Congress to act because anything to address social security is going to require some pain on some groups, whether it be tax increases or benefit cuts. There really is no other way around it.
Those are the two options or some mix between the two. Where the social security trustees report came out last year is they say that on a combined basis, the trust funds will be exhausted in 2034. That’s likely to be accelerated, I’m guessing, when they come out with their new trustees report in the weeks ahead.
So things are challenging. I suspect that what’s going to happen is Congress is going to kick the can down the road as long as they possibly can. We’ll likely see some action once we get to the point where we’re months away from having benefits actually cut.
Jeffrey Snyder, Broadcast Retirement Network
I’ve been reading a lot of the, not the law or the legislation, but some of the proposals. There’s a lot of pain to go around, so there’s not one group. I kind of feel like you’re kind of saying that the Congress or the lawmakers and policymakers are in this iron maiden where they turn one way, they get pulled.
They turn another way, they get pulled. There’s pain to go around regardless of what the ultimate decision is or decisions.
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
Ultimately, that’s what’s going to need to happen is you’re going to have to figure out how you’re going to spread the pain across different groups, whether it’s workers, retirees, young versus old. This is not something that Congress relishes doing. Throughout Social Security’s history, there’s been two solvency bills that have passed.
One was in 1977, and the other one was in 1983, and there’s been no action since. Again, it’s not something that Congress enjoys doing, which is raising taxes or cutting benefits, particularly for a program as important as Social Security. Where we end up, I’m not really sure.
I think ultimately you’re going to need a compromise because you’re going to have to have both sides willing to accept a package that neither of them likes, I think to have meaningful reform. I suspect between now and 2033 or whenever the trust funds are exhausted, you’re going to hear a lot of talk. People are going to stay on their positions in terms of no benefit cuts or no tax increases.
I think the real conversations will likely happen as we get closer to the trust fund exhaustions. I will say, in 1977 and 1983, the trust funds were months away from not being able to pay full benefits, scheduled benefits. I suspect that’s where we’ll be today.
I’m happy to talk about lessons learned from 1977 and 1983 that I think still has some application until today.
Jeffrey Snyder, Broadcast Retirement Network
Let’s go there, and then I want to pivot to overall retirement security, but let’s start there. For those members of Congress, and there are quite a few that stick around for a long period of time. I don’t think they stick around that long, but maybe they don’t have the benefit of history.
What are some takeaways that newer members of Congress or people that are going to be there in 2032-2034 should take away from the previous reforms?
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
One thing I would say is that economic conditions can change quickly, and that can accelerate the trust fund reserve depletion. When you look at 1977 and 1983, that was the case in both years, is that the economic conditions changed, and things in terms of Social Security and the trust funds changed quickly. That’s one thing to be aware of.
Even though the Social Security Administration and CBO may be projecting trust fund depletion in 2034-2033, if economic conditions change, that could be accelerated, and they would need to act quickly. The other piece that I would mention is that projections can be wrong. We saw this in particularly from 1983.
At the time that the Social Security amendments were passed, it was expected that the trust fund would be solvent for 75 years. We’re going to end up being 50-55 years or something like that. Part of that has to do with two factors.
One is that the growing earnings inequality drove the trust fund revenues to not be realized as they expected in 1983. The other piece that I would mention is that in 1983, when they passed the bill, this was expected. This part was expected, but they knew that the baby boom generation was going to be retiring and that the costs for Social Security were rising as a percent of the economy.
What they ended up doing is they passed laws that created surpluses early on. Those surpluses paid for the deficits in the second half of the 75-year window. Now, what happened is today we are in that later half, so we’re realizing these deficits today.
They’re larger than expected. As I said, a big part of that has to do with rising earnings inequality.
Jeffrey Snyder, Broadcast Retirement Network
You know, Gary, the only thing, as you were talking, 1977, Star Wars, 1983, the Empire Strikes, or the Return of the Jedi, those are the only things I remember from back then and I was alive. I want to pivot in all seriousness to retirement security. Social security is, by all accounts, a retirement program that many, many, many, many Americans today, tomorrow, and in the future depend on.
How are we doing overall with retirement security when you look at it from your lens?
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
I think you need to look at it in terms of different income classes. I think higher income folks are doing well. The private retirement savings system is working well for them.
It doesn’t mean that it’s perfect or there’s not opportunities to improve it, but I would say overall it is working well for them. They’re saving in the 401k, they’re getting matches, and they’re building out substantial assets. The tweaks that need to be made are things in terms of rolling over when they leave an employer or also lifetime income opportunities.
I would say for the lower half or the lower third, things remain difficult and that’s why social security is so important for them, but it’s also important for us to improve retirement savings and just more broadly saving opportunities for those individuals. Many of them are struggling to make ends meet, so saving anything is difficult, but having programs and policies in place that make it easy to save both for retirement and emergency savings is critically important to them. I think where there’s a lot of discussion is those in the middle, and I think even in the middle there’s a lot of it’s not a homogeneous group, and so when we’re thinking about social security, when we’re thinking about improving the private retirement savings system, there really needs to be a focus on that group and making sure that they’re protected and they have adequate income in retirement.
Jeffrey Snyder, Broadcast Retirement Network
So when you look at coverage, I guess that let me ask you about that because you know, as you know, you’re heavily involved in this business in this area. In terms of policy, I’ve been involved in the retirement business for a long time. We saw the state step up with auto IRA programs to provide coverage for small business employers.
We had the passage of pulled employer plans as part of Secure. Now we have the president issue an executive order for what they’re calling Trump IRAs, which is basically, I think they kind of tried that before, but are we doing enough for that coverage to provide people the opportunity? I think what you’re saying, we need to provide the opportunity for more people to save and be able to save as much as they can.
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
Yeah, I think there’s two pieces of it. I think there is the coverage question and making sure that people have an easy way to save for retirement. I think there’s also a question of adequacy, making sure that they’re saving enough or where we have policies in place to encourage employers to match or for the federal government’s savers match, which is coming online in 2027.
I think there is a lot of momentum and there has been a lot of momentum to expand coverage. And I think that will continue. And I think the president’s Trump IRA executive order will lead to additional legislation and that I think we will ultimately close the coverage gap.
I would also say that we can’t forget about emergency savings because that is an important part of people’s overall well-being. And having emergency savings also makes it less likely that people withdraw early from their retirement savings account. So all these pieces fit together.
And I think from a private retirement savings standpoint, there’s a lot of momentum, a lot of action happening, which is absolutely fabulous for thinking about retirement security, looking ahead. We now need to address the other piece of it, which is the social security part of it. I think that between the two, social security and the private retirement savings, we can have a system that really works well for everybody.
Jeffrey Snyder, Broadcast Retirement Network
Last question for you. And I do apologize because we have a short timeframe and obviously this is not something that we can solve in 10 minutes, 20 minutes, or even probably an hour. But my last question is around longevity.
What are we doing from a policy perspective around longevity? Most people are living longer. Retirement savings has to last longer.
But those expenses, Gary, when you hit retirement, especially the last five, 10 years of life, it’s a lot of medical visits, a lot of expenses there. Are we doing enough to incorporate that into some policy initiatives? I understand social security is important.
Got to solve that. We’ve done a lot of great things. We’re working on coverage.
But what about that component of that? Because that would seem like, I don’t want to run out of money if I’m going to live that long.
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
Yeah, I think making sure that people have adequate lifetime income is critically important. I think we’ve done well in terms of encouraging accumulation of assets in 401k. Again, it’s not perfect.
We could do better. I think there’s more we can do in terms of making sure that that nest egg, that those assets in the 401k, lasts a person’s lifetime. And annuities are one solution.
Private annuities are one solution. Social security is also another solution. And one thing that I will mention is that I think while when people claim social security benefits is a very personal issue, I think generally speaking, the longer people can delay, the better off they will be because social security provides that lifetime income.
And one proposal, which I have actually put out there with some colleagues, is around something called supplemental transition accounts for retirement. The idea is that you’re building a bridge through retirement savings in order to be able to delay claiming social security. So you’re relying on that start account in order to delay claiming.
And when you delay claiming social security, you’re increasing your monthly benefits for the rest of your life, which increases lifetime income and creates greater security over the long term.
Jeffrey Snyder, Broadcast Retirement Network
Well, it sounds like it’s going to take a village to solve social security. It’s going to take a village to build the retirement system, improve upon it. It’s going to take a lot of different points of view.
Gary, we’re going to have to leave it there as always. It’s great to see you. And look, we look forward to having you back on the program again very soon.
Gary Koenig, Independent Consultant & Non Resident Fellow, Urban Institute
Thank you for having me. Have a good one.
