RSS Feed MenuA new survey by Sun Life Financial found that 48 percent of American workers would opt out of Social Security, even if doing so meant the loss of future Social Security benefits. Given the decline in the stock market over the past year, as well as the defeat of personal account-based Social Security reforms in 2005, this is a startlingly high number.
- Workers in their 30s are most likely to favor not paying into the Social Security system, with 59% responding they would rather not pay the taxes and not receive benefits.
- 51% of workers age 40-49 prefer to not participate.
- 44% of workers age 50 to 59 prefer to not participate in the Social Security program, and 39% of workers 50 and older would rather not participate.
- Even a significant amount of respondents who are nearing traditional retirement age would choose to stop paying Social Security taxes. One in three (33%) workers over the age of 60 said they would stop paying Social Security taxes even if it meant they would not receive any benefits.
- Almost half (47%) of Americans with a household income of less than $25,000 would choose to opt out of the system, and 48% of those making between $25,000 and $50,000 a year would as well.
- Slightly more than half (52%) of Americans making over $125,000 a year would choose to stop paying Social Security taxes and not receive the benefit.
- 57% of men age 40 to 49 would opt out of Social Security, while 45% of women in that age group would choose to opt out.
- 62% of men age 30 to 39 would opt out. Just over half (56%) of women age 30 to 39 would choose to opt out.
It reflects, in my view, not a confidence in markets or individual investment skills – both of which have been shown lacking in recent years — so much as a lack of confidence in the Social Security program, which has long faced significant deficits but which has also seen a similar lack of government action to correct them.
Now, for many of the workers surveyed opting out of Social Security would clearly be a bad idea. A worker nearing retirement today is almost sure to receive his full benefits, and could not hope to make up for them in the market. But again, this reflects a broad lack of confidence in the program, which may have transferred over due to government mismanagement of other sectors.
I have long thought that the most compelling argument for Social Security accounts was not higher returns through stocks, but the security that comes through personal ownership. (Unfortunately, the White House in 2005 focused on rate of return arguments, which are also factually dodgy.) Now, some will argue – not without evidence – that personal ownership of 401(k)s, homes and other assets did not protect Americans from the financial downturn. True enough. But I believe there is a strong, perhaps innate, preference for individual ownership that comes through even in difficult times. (And, as I’ve argued elsewhere, personal ownership has significant non-financial benefits to individuals and their communities.) This survey appears to buttress that view.
If and when President Obama chooses to address Social Security – and I have good reason to believe he will choose to do so – lawmakers on the right need to promote policies that address Social Security’s significant financial shortfalls while retaining and strengthening its safety net against poverty in old age. The key to this, however, is also building significant new retirement savings by individuals. It is only if personal saving rises that Social Security can be reformed to hold the line on costs and target its mission more closely toward low earners. If Social Security continues to act as a de facto retirement saving vehicle for middle and high earners, program growth and significant tax increases are inevitable.
gblittle // Mar 16, 2009 at 1:45 pm
As much as I wish SS would change, be revamped, done away with — your last sentence will hold true — sad but true.
JJWFromME // Mar 16, 2009 at 2:09 pm
The main reason their confidence is shaken is because of sustained fear mongering campaigns blowing the problem out of proportion. If nothing is done, there will be no problem until 2042. And even then, benefits will be paid at 75%, still better than today’s SS recipients adjusting for inflation. Also, if you explain to them that “opting out” defeats the way the program is supposed to work, I bet you’d get a different polling result:
http://www.washingtonmonthly.com/archives/individual/2008_09/014810.php
If the fear mongering had more than an ideological slant, you would start with Medicare, which is actually in trouble. (But that’s a policy area that conservatives are much less comfortable discussing, because they wouldn’t like the resolution of that discussion.)
sinz54 // Mar 16, 2009 at 3:14 pm
SS is not an investment program like a 401(k). It’s an insurance program, with old age, death, and disablement benefits. Last year, I became sick and disabled (kidney failure). I qualified for SS disability payments, which helps pay my bills now that I’m no longer working. Folks w-h-o would like to opt out of the SS system don’t think much about that. I bet that many of them don’t have private Long Term Disability (LTD) insurance. So without SS, if they became disabled like me due to sudden illness or accident, they would have no recourse.
dendup // Mar 16, 2009 at 3:58 pm
The Sun Life website didn’t include the actual questions or response breakdowns. so its dificult to really draw any conclusions about what it said. (Other than we should all go out and but Sun Life annuities.) That aside, http://www.gallup.com/poll/107146/One-Five-Americans-Expect-Work-Retirement.aspx provides perhaps a more neutral picture of “unretirement” (SL word for the problem its products address.) So other than printing an insurance company press release, what does this article say? SS has problems of both funding and public confidence and Reps should come up with something better than Bush did. Even as a liberal, I can get behind that. As to the effects of asset ownership Andrew discusses, the words chicken and egg come to mind. Sinz makes an important point about the insurance aspect of SS.
dacookson // Mar 16, 2009 at 9:27 pm
sinz54’s point is right of course, SS is insurance. The fact that it is universal and mandatory is because the government realised that a lot of people, including investment bankers, tend to think short term. The SS insurance protects society from the negative effects that would come with poverty, increased crime, begging, people becoming unemployable, full hospitals and so on. It’s not perfect at the moment by any means, but it is logically sound and the same principles apply to healthcare. It’s another issue that has been utterly clouded by ideology and short term thinking. When you pay SS you are paying for your own security even if you never draw on it yourself, it’s in everyone’s interest to make it work. ‘You are less likely to be mugged with SS’ would be my slogan…
agbiggs // Mar 17, 2009 at 11:49 am
Sinz54: For what it’s worth, Social Security is PART insurance, but a good part is simply forced saving. Yes, Social Security pays insurance benefits to the disabled and survivors, and acts as a welfare program by redistributing to poor retirees. But much — probably most — of the taxes received and benefits paid are simply requiring people to save for retirement through Social Security, when we could just as easily require them to save through other means. If we can establish universal retirement savings, then a smaller Social Security can fulfill the program’s insurance functions more effectively.
Dendud: I also looked for the exact question wording, but couldn’t’ find how they phrased things, which is important. It appears they did tell folks that if they opted out they also lost their benefits, which is key.
dacookson // Mar 17, 2009 at 1:33 pm
Sorry to be pedantic but isn’t forced retirement savings the same as insurance? It’s insurance against not having enough money in the bank when you retire to live independently. I’m a bit out of my depth I admit, but how would splitting the system help? You can’t use the private sector because of the inherent risk so why have two government funds when one will do?
dendup // Mar 17, 2009 at 1:59 pm
agbiggs: My point in mentioning that you reprinted much of a press release is this – we don’t know the actual wording of the questions and we don’t know all the response breakdowns. The methodology appears sound, but again, there’s a lot we don’t know. What we do get is the company’s characterizations of the results without the data to come to our own conclusions. I’ve worked on enough opinion research to be suspicious when a presentation consists only of the characterizations that support the case being made. After all they are selling something here. I do not mean to imply that “unretirement” isn’t a real problem which is why I reference the Gallup info. But rather than a possibly self serving press release, I would be more interested in you updating your 2001 article on SS privitization.
http://www.socialsecurity.org/pubs/articles/art-biggs010410.html
Ind55 // Mar 17, 2009 at 6:43 pm
Andrew Biggs seems correct (pending information on the wording of the questions) in saying that this survey shows a remarkable level of concern about SS. I’d guess that people are voting that the Federal debt is growing so fast today that it will become too big to allow SS benefits.
However, the real policy question would be worded something like this “Would you opt out of SS, if that meant you paid no more taxes, forfeited your benefits, and that currently retired people would see their benefits immediately drop to zero?”
Or, maybe, “Would you opt for a system where SS taxes continue at their current rate, your future benefits are about 75% of the current schedule, and you are also required to pay __ percent of your current income into a government mandated savings program with these restrictions [ enter whatever investment and withdrawal restrictions seem likely here ]”
These questions are more representative of the actual decisions we need to make.
agbiggs // Mar 20, 2009 at 10:28 am
dendup: I did something of an update of the market risk paper here (http://www.aei.org/publications/filter.all,pubID.28971/pub_detail.asp). The key finding was that people retiring today would not have suffered great losses had Social Security accounts been passed. Had accounts been in place for workers’ entire lives, a typical worker retiring in late 2008 would have increased his total Social Security benefits by around 15%. The reason for this is that today’s terrible returns would have been matched by higher returns in previous years. Even if accounts were passed just a few years ago and people started accounts as the market was beginning to decline, losses would have been very small (under 1% of total benefits). The reason is first, the amounts invested in accounts would have been small, and second, under the Bush plan accounts would automatically shift to a “life cycle” portfolio that had older workers holding very little stocks.