Introduction |
There is an important national discussion going
on concerning the future of Social Security. We at the Social Security
Administration are often asked about the future of the Social Security
program. Below are answers to some of the most frequently asked questions:
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Social Security Benefits |
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I am retired and receiving a monthly check from Social Security.
Are my monthly payments going to be cut? |
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No, there are no plans to cut benefits for current
retirees. In fact, benefits will continue to be increased each
year with inflation. |
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I'll be retiring in the next five to 10 years. Can I expect my
presently scheduled benefits to be paid to me at retirement? |
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Many reform plans, including those put forth
by the President's Commission to Strengthen Social Security, preserve
scheduled benefits, including cost- of-living increases, for near-retirees.
Depending on the proposal, a "near-retiree" is defined as someone
aged 50 to 55 and older. |
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My parents are receiving Social Security payments. Should I be
worried that their monthly checks will be cut and that I will
have to make up the difference? |
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No, there are no plans to reduce benefits for
current retirees. In fact, benefits will continue to grow annually
with inflation. |
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I am receiving disability benefits from Social Security. Should
I be worried that my monthly check will be cut? |
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Most plans, including those put forth by the
President's Commission to Strengthen Social Security, do not reduce
the benefits of currently disabled beneficiaries. |
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I'm 35 years old. If nothing is done to improve Social Security,
what can I expect to receive in retirement benefits from the program? |
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Unless changes are made, at age 73 your scheduled
benefits could be reduced by 27 percent and could continue to
be reduced every year thereafter from presently scheduled levels.
See the Trustees Report |
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I'm 25 years old. If nothing is done to change Social Security,
what can I expect to receive in retirement benefits from the program? |
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Unless changes are made, when you reach age 63
in 2042, benefits for all retirees could be cut by 27 percent
and could continue to be reduced every year thereafter. If you
lived to be 100 years old in 2079 (which will be more common by
then), your scheduled benefits could be reduced by 33 percent
from today's scheduled levels. See
the Trustees Report |
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Should I count on Social Security for all my retirement income? |
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No. Social Security was never meant to be the
sole source of income in retirement. It is often said that a comfortable
retirement is based on a "three-legged stool" of Social Security,
pensions and savings. American workers should be saving for their
retirement on a personal basis and through employer-sponsored
or other retirement plans. |
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Get an estimate of
your retirement benefit using our calculators
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Social Security's Assets |
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Does Social Security have dedicated assets invested for my retirement? |
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Social Security is largely a "pay-as-you-go"
system with today's taxpayers paying for the benefits of today's
retirees. Money not needed to pay today's benefits is invested
in special-issue Treasury bonds. |
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Is there really a Social Security trust fund? |
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Yes. Presently, Social Security collects more
in taxes than it pays in benefits. The excess is borrowed by the
U.S. Treasury, which in turn issues special-issue Treasury bonds
to Social Security. These bonds totaled $1.5 trillion at the beginning
of 2004, and Social Security receives more than $80 billion annually
in interest from them. However, Social Security is still basically
a "pay-as-you-go" system as the $1.5 trillion is a small percent
of benefit obligations. |
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Social Security`s Future |
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I hear that Social Security has a big financial problem? Why? |
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Social Security's financing problems are long
term and will not affect today's retirees and near-retirees, but
they are very large and serious. People are living longer, the
first baby boomers are five years from retirement, and the birth
rate is low. The result is that the worker-to-beneficiary ratio
has fallen from 16-to-1 in 1950 to 3.3-to-1 today. Within 40 years
it will be 2-to-1. At this ratio there will not be enough workers
to pay scheduled benefits at current tax rates. |
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What will happen if Social Security is not changed? |
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If Social Security is not changed, payroll taxes
will have to be increased, the benefits of today's younger workers
will have to be cut, or massive transfers from general revenues
will be required. Social Security's Chief Actuary states, "If
benefits were reduced to meet the shortfall in revenue for the
combined program, the reduction would need to be 27 percent starting
with the exhaustion of the Trust Fund in 2042 and would rise to
32 percent for 2078. Alternatively, if additional revenue were
provided beginning in 2042, revenue equivalent to a payroll tax
rate increase of about 3.1 percentage points (from 12.4 percent
under current law to about 15.5 percent) would be needed for the
year. The additional revenue needed for 2043 would be equivalent
to a payroll tax rate increase of about 4.5 percentage points
for the year. Thereafter, the amount of additional revenue needed
would gradually rise, reaching an amount equivalent to an increase
in the payroll tax rate of about 5.9 percentage points for 2078
(or about 50 percent higher than today's rate). See
the Trustees Report |
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How big is the future problem? |
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Social Security is not sustainable over the long
term at present benefit and tax rates without large infusions
of additional revenue. There will be a massive and growing shortfall
over the 75-year period.
Social Security's Chief Actuary projects that in present-value
dollars the total net Social Security cash flow for years 2004
through 2078 is projected to be nearly -$5.2 trillion. When the
trust fund balances of $1.5 trillion at the beginning of 2004
are added to this value, we get a financial shortfall (or unfunded
obligation) for the 75-year period of $3.7 trillion. This unfunded
obligation indicates that if an additional $3.7 trillion had been
added to the trust fund at the beginning of 2004, the program
would have had adequate financing to meet the projected cost of
benefits scheduled in current law over the next 75 years. See
the Trustees Report |
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If Social Security's financial problem is so long term (negative
cash flows not until 2018 and trust fund exhaustion in 2042),
why do we need to fix it now? |
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As the Trustees of Social Security, the Comptroller
General of the United States and the Chairman of the Federal Reserve
Board have said, the sooner we address the problem, the smaller
and less abrupt the changes will be. The independent, bipartisan
Social Security Advisory Board has said: "As time goes by, the
size of the Social Security problem grows, and the choices available
to fix it become more limited." Addressing the problem now will
allow today's younger workers planning for their retirement to
have a better assurance of the future of Social Security. See
the Trustees Report |
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Trustees Report |
Social Security Modernization |
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What are the alternatives for modernization and reform? |
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The four basic alternatives that are being discussed
-- singularly or in combination with each other -- are (1) increasing
payroll taxes, (2) decreasing benefits, (3) using general revenues
or (4) prefunding future benefits through either personal savings
accounts or direct investments of the trust funds.
The independent, bipartisan Social Security Advisory Board examined
many options that addressed Social Security's long-range solvency
problem. Its July
2001 report is available online in pdf format.
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Does President Bush have a specific plan to modernize and reform
Social Security? |
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No, but the President has established six guiding
principles for any reform of Social Security:
- Preserve Social Security benefits for retirees and near-retirees
- Use Social Security surplus for Social Security
- Keep Social Security payroll taxes level
- Do not have the government invest Social Security funds in
the stock market
- Preserve Social Security's disability and survivors insurance
programs
- Create individually controlled, voluntary personal retirement
accounts to augment Social Security
The bipartisan Commission he appointed put forward three models
based on these principles. These models are in the process of
being discussed, as are other alternatives |
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Will Social Security be replaced by a private sector retirement
plan ("privatization")? |
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No. There are no credible plans to replace Social
Security as the foundation for the retirement of American workers. |
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What is a voluntary personal retirement account? |
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There are many possible ways to structure personal
accounts. Several proposals recommend that a personal savings
account plan for Social Security be modeled after the federal
government's Thrift Savings Plan. This very popular plan for federal
employees and members of Congress allows a choice of five highly
diversified, low-cost mutual funds. In the Thrift Savings Plan,
no direct investments in individual stocks are allowed. |
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I understand that some reform plans require larger transfers
from general revenues to fund personal Social Security savings
accounts. Is that true? |
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Yes. Many of the plans put forth, including those
by the Commission and by some members of Congress, require significant
transfers from general revenues. Depending on the underlying assumptions,
these transfers generally range from less than $1 trillion to
more than $2 trillion, in today's present-value dollars. However,
it is also true that if no changes are made, revenue transfers
totaling $3.7 trillion, in today's present-value dollars, would
be needed to pay currently scheduled benefits over the next 75
years. |
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Would a "lock box" fix Social Security's problems in and of itself? |
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No. As Social Security's Chief Actuary has stated,
"The implementation of a Social Security 'lock box' would not
alter the U.S. Treasury commitment and thus would have no direct
effect on the future solvency of Social Security. However, if
the effect of a 'lock box' were to require that the non-Social
Security Federal budget be in balance or surplus for the years
in which Social Security makes investments, then the amount of
borrowing from the public might be reduced. In this case the difficulty
of generating General Revenue for the redemption of Trust Fund
investments in the future would likely be diminished." |
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Global Aging |
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Social Security's future challenges are caused by the aging of
our population. Do other countries have similar problems? |
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Yes. Most countries in Europe, as well as Japan,
have more serious challenges than the U.S. Even some developing
countries are starting to face up to the aging of their populations. |
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What are these other countries doing to face their challenges? |
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Many of these countries have begun to prefund
their social security plans. More than 20 countries, including
Britain, Australia and Sweden, have established versions of personal
accounts. |
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