He Ran Social Security—Now He’s Warning Retirees What Comes Next

Jason Fickner, former deputy commissioner of the Social Security Administration and current executive director of the Limra Retirement Income Institute, discusses the state of Social Security, offering insights for different age groups and addressing common misconceptions. For individuals in their 50s and 60s, Fickner advises cautious optimism rather than excessive worry about Social Security. He clarifies that the projected depletion of the primary trust fund for retirement in 2032 does not mean bankruptcy. Instead, it implies that Social Security would only be able to pay out approximately 78% of benefits based on current revenues, primarily payroll taxes. He emphasizes that even in a worst-case scenario where Congress takes no action, benefits would still be around 80%. Most reform plans circulated tend to protect current retirees or those 50-55 and older from benefit cuts, possibly only slowing the growth of cost-of-living allowances. Fickner encourages this demographic to urge Congress to act now for better planning. He notes a recent movement in the House and Senate to propose bills for a reform or retirement commission, similar to the major reforms in 1982-83. Fickner advocates for encouraging all proposed plans rather than immediately attacking them, to foster a productive debate. He warns that the tagline "keep your hands off Social Security" is detrimental, as inaction by Congress would automatically lead to benefit reductions in 2033 due to Social Security's lack of independent borrowing authority. For those in their 30s and 40s, Fickner frames retirement around the concept of "income is the outcome." The goal is to replace working income, which comes from three main buckets: Social Security, personal savings, and employer-sponsored retirement plans. Social Security is designed to replace 30-40% of income on average, meaning other sources must cover the remaining 30-40%. He stresses the importance of starting to plan holistically and saving early to leverage the power of compounding. Regarding the 30-40% replacement rate, Fickner explains that Social Security, officially the Old Age and Survivors Insurance (OASI) program, was initially designed as an insurance program against old age, not a comprehensive retirement plan. Its original structure, conceived for a nuclear family with a primary working spouse, did not account for two-earner households, which are now common. Some reform plans consider capping benefits for high-income married households to address these changes. The biggest misconception about Social Security, according to Fickner, is the belief that it is going bankrupt. He reiterates that it will be there, but the form it takes will depend on reforms. This misconception often leads people to claim benefits early at age 62 out of fear. Fickner strongly advises against this unless absolutely necessary. He highlights the significant difference in benefits: claiming at 62 results in a 30% reduction compared to full retirement age (e.g., 67), while waiting until 70 yields a 24% increase. The difference between claiming at 62 and 70 is a 77% increase in monthly, inflation-protected benefits. He states that anything below age 70 should be considered a penalty, and claiming early should only be done out of genuine need, not fear. Fickner mentions that during his time as deputy commissioner, the Social Security Administration stopped using break-even analyses, which often incentivized early claiming without fully explaining the long-term financial disadvantage for those who live past the break-even point. Instead, the agency now provides a two-page document emphasizing that claiming is an individual decision, considering factors like family, spousal benefits, other income, age, and healthcare. This shift aims for informed choices rather than fear-based ones. He emphasizes the need to view Social Security as income insurance, an "income floor" in retirement, rather than an investment. This mindset shift from wealth accumulation to wealth preservation and income strategy is crucial for retirement planning, especially given the transition from defined benefit to defined contribution plans. Addressing political misconceptions, Fickner points out a bipartisan failure: the cost of delay. He notes that 15 years ago, the payroll tax increase needed to cover the 75-year shortfall was 1.92 percentage points; today, it's about 4.5%, and by 2032, it will be almost 5 percentage points. Similarly, eliminating the payroll tax cap (currently around $184,500) would have solved the 75-year solvency issue 15 years ago, but now it only covers 40-60%. Democrats, he believes, mistakenly think the issue can be solved solely through tax increases. A 4.5-5 percentage point increase in payroll taxes, when combined with Medicare taxes and state/federal taxes, could push marginal tax rates above 50%, discouraging work and hiring. Republicans, conversely, are mistaken in thinking it can be solved without revenue increases, relying solely on benefit cuts. Fickner argues that a 20% across-the-board benefit cut is politically unfeasible, and targeting only the wealthy would require an even larger cut for them. A compromise involving both revenue and benefit changes is necessary. He also clarifies that a "slower growth" in benefits, such as a reduced cost-of-living allowance, is not a "cut" but merely a smaller increase. Fickner believes the odds of Congress acting within the next one to two years are slim. He predicts action will likely be triggered closer to the 2028 presidential election, as candidates will be forced to address the issue, and the eventual president will not want the trust fund depleted on their watch. This could involve intergovernmental borrowing from the Disability Insurance (DI) trust fund (which is solvent for 75 years) as a short-term bridge. If Fickner were to propose an ideal package, it would include: 1. A phased-in two-percentage-point increase in the payroll tax rate (one on employer, one on employee, 0.1% per year for 10 years). 2. A change in the cost-of-living allowance (COLA) to reduce its growth rate, but not a direct benefit cut. 3. Raising the payroll tax cap to around $250,000, adjusted for inflation, to cover 90% of covered wages. 4. An increase in the retirement age to 70 over time, adjusted for longevity, which would primarily affect younger generations. 5. Use of intergovernmental borrowing as a bridge for immediate savings. He also suggests making Social Security benefits fully taxable for high-income earners rather than implementing means testing on the checks themselves. Fickner advocates for more creative solutions beyond just raising payroll taxes. He suggests alternative revenue sources like a carbon tax, dedicated Trump tariffs, or a small financial transaction tax. These options could generate substantial revenue without heavily taxing labor and savings, which he believes are already overtaxed. He even muses about an "AI tax" if artificial intelligence significantly changes the labor market. Looking back, Fickner has changed his mind on the likelihood of intergovernmental borrowing, now believing it's a necessary bridge due to the long delay in reform. He expresses concern about the growing national debt and its impact on the bond market, which could demand higher interest rates if substantial borrowing for Social Security is required. He also warns against relying on inflation-adjusted Social Security checks as a sole defense against inflation, as the adjustment lags actual price increases. He advises today's retirees not to worry that Social Security won't be there for them, emphasizing its role as disability insurance as well. However, he believes they don't worry enough about affordability in retirement, considering rising costs of living, taxes, and energy. He suggests thinking holistically about expenses and potential flexibility in living arrangements. Fickner notes that Social Security has become a greater piece of the retirement income puzzle over time for many, morphing into a perceived retirement program rather than just old-age insurance. For his own retirement planning, Fickner views Social Security as an income floor and plans to supplement it with other guaranteed income sources, likely through partial annuitization of his 401k/403b/IRA assets. He highlights that annuities provide predictable lifetime income, addressing sequence of return risk inherent in withdrawal strategies like the 4% rule. He believes that annuity fees are decreasing, and the market will drive down costs further, making them more accessible and "commoditized" for the general public, especially for "bridge annuities" that help individuals delay claiming Social Security. In a lightning round: - Claim at 70 if possible; don't claim until needed. - Biggest myth: Social Security is going bankrupt. - Most underrated feature: Disability insurance. - Most overrated reform proposal: Completely lifting the payroll tax cap. - Inevitable reform: Revenue increases, likely a small payroll tax rate hike. - Hopes never happens: Means testing of Social Security (prefers taxing benefits for high-income earners). - Economist to follow: Jason Fickner, David Blanchett, Michael Finke, Andrew Biggs, Wade Pfau. - Retirement book to read: "Annuities for Dummies" and Andrew Biggs' "The Real Retirement Crisis." - The future of Social Security: Solvent.