Alicia Munnell, director of the Center for Retirement Research at Boston College, likes President Joe Biden's proposal to fix Social Security because it doesn't call for any benefit cuts. Overall, though, the professor gives it a grade of "incomplete." She tells why in an interview with ThinkAdvisor.
What's chiefly missing, she says, is that the plan would not increase Social Security payroll taxes broadly enough to pay folks full retirement benefits for the next 75 years. That is, it won't "fully close" the shortfall the system faces since it would raise taxes only on those earning more than $400,000 a year, she argues.
While the main sticking point on how to fix Social Security has morphed from chopping benefits to adding enhancements, Munnell, professor of management sciences, thinks Biden's proposal could do with a cutback on the enhancements side.
Earlier, Munnell served in government posts. She was on President Bill Clinton's Council of Economic Advisers and was assistant secretary of the Treasury for economic policy from 1993 to 1995. Before that, she was senior vice president and research director at the Federal Reserve Bank of Boston.
In the interview, she forecasts, as fallout from the coronavirus pandemic, the continuing rise in workers starting their Social Security benefits early instead of waiting till full retirement age, a move that means lower payments. The same trend occurred during, and for a few years following, the Great Recession, she notes.
Co-founder and first president of the National Academy of Social Insurance, Munnell calls the financial effects of the pandemic "a splintered experience": the booming stock market has made many investors wealthier, while lower paid young workers have been bashed economically.
But the pandemic's impact on retirement has been slight, she contends. For a start, "there's very little evidence" that many employees are raiding their 401(k) accounts since generally people who lost jobs have no 401(k) plans. Nor have employers reduced their contributions, she says.
ThinkAdvisor recently interviewed the professor, who was speaking by phone from the Boston area. Munnell, who has a doctorate from Harvard, holds that, as opposed to buying an annuity, deferring Social Security benefits — by relying on, for example, 401(k) assets — is "the cheapest, easiest, best way" to buy more annuitized income.
Nonetheless, she's interested to see whether employees will be more attracted to annuities now that the Secure Act makes it easier to have one within a 401(k) account.
Here are highlights of our conversation:
THINKADVISOR: What's your take on President Biden's proposal for fixing Social Security?
ALICIA MUNNELL: A step in the right direction. Good ideas but incomplete. There's nothing wrong with it. It's just not complete. He wants to have a few benefit enhancements and to increase taxes for people earning over $400,000. But I don't think his numbers close the full 75-year Social Security [system] shortfall.
What do you like most about his proposal?
The fact that he starts from a position of not cutting benefits. To cut back would be a mistake, given how little most people have in their 401(k) plans. But I'm not sure how hard I'd fight for enhancements.
If you were proposing a plan, what would you focus on?
I'd want to see something that restores balance for 75 years. [Biden's proposal] needs more on the revenue side — raising taxes on the current payroll tax base to pay full benefits from now to 75 years from now — and less on the enhancements side.
Social Security reform was a highly partisan issue during the Trump administration. Do you think it will be less polarized now that we have a new president?
I would hope so. I think there won't be as much desire to cut back as there was in the past. The whole debate has shifted. I used to be way on the progressive side by not wanting to cut Social Security. Now there are all these people on my left saying we should expand Social Security. I'm really thrilled about that because it makes my position look like a compromise.
During the pandemic, many workers started claiming Social Security early. Do you foresee more workers doing that?
