The next era of Social Security

DARIAN WOODS, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.

WAILIN WONG, HOST:
And I'm Wailin Wong. So you've probably heard of peak oil.

WOODS: Yeah, the theory that we've already hit maximum conventional oil production. There's also peak TV.

WONG: That's how some critics describe a golden age of television in the early 2000s. Now let us introduce you to peak 65.

WOODS: Yeah. So peak 65 refers to a record number of Americans who are retiring. It's the biggest retirement surge in history, and it started this year.

WONG: More than 4 million Americans will turn 65 each year between 2024 and 2027. That's over 11,000 people hitting this milestone every single day.

WOODS: It's a lot of birthday candles.

WONG: Yes. We are going to need a bigger cake, or more importantly, we are going to need more robust systems to make sure this record number of retirees is financially secure because we've probably all seen the headlines about how Social Security is in huge trouble. The program's cash surplus is expected to run out in less than a decade.

WOODS: The country's retirement systems are due for an overhaul, maybe even one as radical as the creation of Social Security back in 1935.

WONG: Today on the show, we explain the origins of Social Security, and we look at some big ideas to tackle the challenges of peak 65 and beyond.

(SOUNDBITE OF MUSIC)

WONG: James Chappel is a historian at Duke University. He has a book coming out in November about the history of aging in the U.S. It's called "Golden Years: How Americans Invented And Reinvented Old Age." And in his book, James makes a bold assertion. He says that Social Security created old age in the U.S.

JAMES CHAPPEL: So people have always had concepts of old age, but what has not been around is the idea we have that your life is divided basically into three parts, which is - one is called youth; one is called middle age, and one is called old age. You cannot find that really before the Social Security era. And a lot of people, of course, didn't even know their own age.

WOODS: I think there's a whole Blink-182 song about this.

WONG: It's a classic.

(SOUNDBITE OF SONG, "WHAT'S MY AGE AGAIN?")

BLINK-182: (Singing) What's my age again? What's my age again?

WOODS: You won't hear me singing it. I'm not sure if I'm too old for this.

WONG: What's your age again, Darian?

WOODS: Not saying.

WONG: (Laughter).

WOODS: Anyway, James says there was a recognition that older adults saw a decline in their physical and mental health. But there were no political discussions about what this group needed, nor were there organizations like the AARP.

WONG: And James says, in the early 1900s, there was not yet this idea of retirement or exiting the labor force with a pension. Over in Europe, Germany and England had set up public pension systems, but these kinds of payouts were still a rarity in the U.S.

CHAPPEL: The idea that, you know, you're 65. Let's have a party. You get a golden watch, and now you're going to hang out on the beach. Like, that does not exist. Civil War veterans were getting pensions and a couple of other kind of small fields, like railway workers. But most Americans could not look forward to anything like that.

WOODS: Then came the Great Depression and the realization that older Americans were living in poverty. In addition, working-class families couldn't afford to take care of their parents.

CHAPPEL: And so when Roosevelt comes into office and is trying to think about the New Deal, old age pensions is one of the things at the top of his agenda. But there are lots of ways to do it. And Americans hadn't been thinking about this very hard for very long. And so there was kind of a chaos of ideas on the table.

WONG: Here's one of those ideas. It came from a California physician named Francis Townsend. In 1933, he wrote a letter to his local newspaper outlining a plan. Townsend argued that automation and new technology were going to put large numbers of workers permanently out of a job.

CHAPPEL: And so how can we save this economy? Well, let's take a big class of people, say, your job is no longer to labor. Your job is to consume. And what's the fairest way to do it? Well, how about old people? They've already done their work.

WONG: Townsend proposed that the federal government give every American over the age of 60 $200 per month, regardless of race or gender or employment status. The catch is that they would have to spend that money. And then all that shopping would help lift the U.S. out of the Depression.

CHAPPEL: Look, Grandpa Joe is out getting a new horse or whatever it is.

WONG: (Laughter).

CHAPPEL: That's the model that actually catches people's imaginations. There were, like, millions of Americans writing letters to Congressmen in support of the Townsend plan.

WONG: Someone get Grandpa Joe a horse already.

WOODS: (Laughter) The thing about the Townsend plan, though, was it was super expensive. Two hundred dollars a month works out more than $5,000 today. So this proposal didn't prevail.

WONG: An earlier and also unsuccessful idea came from a group called the Ex-Slave Mutual Relief, Bounty and Pension Association. It called for pensions to be paid to formerly enslaved people as a form of reparations. But remember, this was the early 1900s. The racism of the Jim Crow era doomed this proposal.

WOODS: And now we get to the idea that won out. There was a group called the Fraternal Order of Eagles. This was an all-male, whites-only organization, and it wanted pensions for older men who were impoverished because they couldn't work in factories anymore.

CHAPPEL: That's the vision that wins out with Social Security. And someone from the Fraternal Order of Eagles is there with Roosevelt when it's signed.

(SOUNDBITE OF ARCHIVED RECORDING)

FRANKLIN D ROOSEVELT: This Social Security measure gives at least some protection to 30 millions of our citizens.

WONG: James describes Social Security as the most important poverty reduction program. It was a massive federal investment in older Americans. And that brings us to the important question of who counts as old. The architects of Social Security settled on the age of 65.

WOODS: And you might remember from our previous episodes on Social Security that each generation of workers pays for the generation above them. Sixty-five was calculated to be the age that would provide for a self-sustaining system without imposing heavy payroll taxes.

WONG: In 1983, the retirement age was raised to 67. And now, given the crisis looming for Social Security, some Republican lawmakers have proposed raising it more, potentially closer to 70.

WOODS: You know, in France, when they raised the retirement age recently, it was just to 64, and there were public protests.

WONG: I think some old folks here in the U.S. might want to riot if the age goes to 70 because, by...

WOODS: Sure.

WONG: ...Some estimates, that would result in a nearly 20% cut in their benefits. The Biden administration, for its part, wants to tax wages above the current cutoff of $400,000 in order to make Social Security more solvent.

WOODS: But either way, older Americans are already financially vulnerable.

KAREN ANDRES: The financial picture for older Americans has been changing.

WOODS: Karen Andres leads the inclusive saving and investment initiative at the Aspen Institute. She says not only are people living for longer after retirement, but they're also carrying more debt into older adulthood. They have student loans and mortgages.

ANDRES: We are left in a situation where people are facing many more years of life without labor income at the same time that the systems really aren't working to meet that challenge.

WONG: More than 30 million Americans have state and local government pensions, but those plans are underfunded and have thrown some state budgets into disarray over the years. Then in the private sector, nearly half of workers don't have access to an employer-sponsored retirement plan.

WOODS: Karen says one way to address this gap is creating new kinds of emergency savings accounts at work. Some employers, including Starbucks and Delta, already offer these accounts.

WONG: Workers can withdraw from these types of accounts if they're hit with an emergency. It's an alternative to tapping into their 401(k) accounts early, which could carry penalties. And then for older workers who are eligible to claim Social Security, they can put off doing that, which means a bigger payout later.

ANDRES: I think one of the big ideas that we're ready to wrestle with is, should the role of retirement savings in that pre-retirement or early retirement period be about helping people delay claiming as long as possible?

WONG: Karen points out that designing systems to make older Americans less financially precarious isn't just a necessity of this peak 65 period we're living in. The millennial generation that's coming up behind the baby boomers - it's an even bigger group. So it's about shoring up their future financial security, too.

WOODS: And what about the Gen Xers, Wailin?

WONG: Who?

(LAUGHTER)

WOODS: Invisible yet again. Sorry. Sorry, Gen Xers.

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