Sylvester Schieber: "The Predictable Surprise: The Unraveling of the U.S. Retirement System"

Sylvester Schieber: "The Predictable Surprise: The Unraveling of the U.S. Retirement System"

The former Chairman of the Social Security Advisory Board explains the history of social security, pension plans and other retirement options. He describes why a crisis is looming and what we can do to address the problems ahead.

It's a perfect storm: the percentage of active workers compared to retirees in the U.S. will shrink dramatically in the coming years. Social security funds will be depleted by the 2030s. Most U.S. companies have long since abandoned defined benefit pension programs. Workers are increasingly relying on the vagaries of the market, and many simply have no idea what they will live on in their retirement years. A former chair of the social security advisory board joins Diane to explain why the U.S. retirement system seems to be coming apart at the seams and what we should do about it.

Guests

Sylvester Schieber

former chairman of the Social Security Advisory Board and author or editor of numerous books on aging and retirement

Program Highlights

Demographics, two major market meltdowns, and rising health care costs. These are just a few of the factors contributing to the unraveling of the U.S. retirement system. Sylvester Schieber is former chair of the Social Security Advisory Board. In a new book titled "The Predictable Surprise," he explains why our retirement system, which seemed to work so well for so many years now seems to be coming apart, and what we can do about it.

"For A Long Time, People Thought Everything Was Pretty Grand

"The Social Security system got off to such a blockbuster start, seemed to thrive 'till we got to the 1970s when we had a little bump, but then has been on track for much of the last 25 years or so," Schieber said. But, he added, it all seems to be coming apart now, and part of the problem is simply demographics. Back when the programs were getting started, there were many workers and not very many retirees drawing benefits, but now, of course, as the baby boomers become retirees, that ratio is almost reversing.

Other Factors Besides Demographics

Back in the 1980s, our policymakers wanted to raise a lot of tax revenue but also wanted to keep tax rates low, Schieber said. "So they reduced or limited the amount that employers could fund in their plans. But as Schieber points out, if you don't fund a worker's benefits as he's earning it while he's young, you have to make up both the contributions and the interest that wasn't earned at a later time. And one of the big problems as Schieber sees it is that we hadn't been funding plans for too long; many baby boomers were getting very close to retirement; and the markets tanked in 2008.

Payroll Tax Holiday A "Partial Holiday"

The payroll tax holiday is actually a "partial holiday," Schieber said. It's a reduction of 2 percentage points in the payroll tax, but funds are still being credited with the income as if it were still being generated. So in a way, there's a sort of "IOU" check outstanding. "They're just issuing additional government bonds and putting them in a binder out in Parkersburg, W.V.," Schieber said.

"I Can't Imagine We're Going to Shut The Program Down"

Schieber said he can't imagine that the social security program will be shut down. "That would be political suicide for anybody who is operating in our federal government in a policy-making position," he said. "The projections right now are that in 2036 when the trust fund is projected to be depleted, we would still have revenues coming in. We'd still be collecting the payroll tax. The projections are that you'd get a benefit that's at least 75 percent or so of the benefit that's defined in current law. Now I can't believe that congress is actually going to go up to that cliff and jump over it and let people's benefits from one month to the next be reduced by 25 percent," Schieber said.

You can read the full transcript here.

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