Why Social Security Isn't Going Away
Voters will demand that Congress shore up the system.
Stephen Goss is chief actuary of the Social Security Administration.
KIPLINGER'S: What do you say to people who worry that Social Security won't be around when they reach retirement age?
GOSS: The whole retirement structure of our country is now set around the idea that Social Security will be there. There have been challenges in the past, and there will always be challenges. But I think we can have confidence in Congress and future administrations to meet those challenges. Why? Members of Congress like to get reelected, and if Congress voted Social Security out of existence, the likelihood of its members getting reelected would probably not be very good. The American people hugely value this program.
How are benefits funded? We mainly have a pay-as-you-go system, using revenues that are coming in from payroll taxes and taxes levied on Social Security benefits. For a while, our total revenues have not been quite enough, so we've been using some of the accruing interest on our large reserves to help pay the full scheduled benefits.
Where did the reserves come from? For a good number of years, our 12.4% tax rate took in a little bit more than was necessary, and that's the reason our trust fund reserves have been building.
So what's the problem? We're projecting to have adequate financing to fully pay all the scheduled benefits only until 2033. Given the shortfalls we've projected, when the reserves are depleted, we would still have 77 cents of overall tax revenue coming in for every dollar of scheduled benefits. At that point, the commissioner would have to ask the terrible question, Do we start sending out checks that are 77% of what they would have been?
How would that be received? The prospect of having a 23% reduction in benefits is something that people would justifiably be upset about. The bottom line is that it wouldn't work.
Is the problem that too many people -- the baby boomers -- are in the system? Will the problem eventually fix itself? For years, people have said that when the baby boomers retire, there will be this big surge of people in retirement and all we will have to do is wait for them to pass on. But it's really a matter of a drop in the birthrate. Shortly after 1965, the birthrate dropped precipitously, from more than three children per woman to about two children. It used to be three children supporting two retirees. Now we're moving to a future with two children in the workforce supporting them. That's really a dramatic change.
Couldn't Social Security simply borrow the money to make up the shortfall? Unlike much of the rest of government, the trustees and the commissioner do not have the authority to borrow money. What that means is that Congress really does have to act.
How soon should that be? The sooner that Congress and other policy makers enact changes, the more gradually they can be phased in. Acting well before the depletion date of 2033 allows policy makers to consider more options and gives those who will be affected enough warning to understand the challenges and to change their plans to meet them.
For each year people wait past full retirement age -- now 66 -- to claim Social Security, they get an 8% boost in benefits, until age 70. You're turning 66 next year. What's your plan? I don't have a real plan to retire anytime soon. But waiting to start receiving benefits if you are healthy could be financially advantageous, especially if you're a woman [because women have a longer life expectancy].