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Explore the financial outlook for Social Security, the rise in costs over the next 20 years, and options for long-term balance. Understand the importance of Social Security in retirement income and discover ways to improve its sustainability.
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Actuarial Status and Future Prospects for Social Security Discussion with Drake University and Iowa Actuaries Club Stephen C. Goss, Chief Actuary Social Security Administration March 26, 2012
Social Security Financial Situation and Options • Social Security’s Role in Retirement Income • The Financial Outlook for Social Security • Why the Rise in Cost over the Next 20 Years? • Options for Getting OASDI in Long-Range Balance • Doing It Better This Time
1) Social Security’s Role in Retirement Income Only one of the three legs of the stool But is the only leg for about one third of retirees And is more than half for about two thirds Defined Benefit, Life annuity, CPI indexed Efficiency??? Over 99 percent “loss ratio” What level of retirement income does it provide?
2) The Financial Outlook for Social SecurityCombined OASDI Reserves Exhaust by 2036; DI Sooner
2) The Financial Outlook for Social SecurityProjected Cost, Income, and Expenditures as Percent of Taxable Earnings
3) Why the Rise in Cost Over the Next 20 Years?3.3 workers per beneficiary since 1975; only 2 by 2035----WHY?
3) Why the Rise in Cost Over the Next 20 Years?Not mortality improvement after 2010-----something else
3) Why the Rise in Cost Over the Next 20 Years?Shift in Birth Rate from almost 3 per Woman to Just 2 Since 1975
4) Options for Getting OASDI in Long-Range BalanceUltimately—reduce benefits 25%, increase income 33%, or some combination!! It’s All About Demographics… Average retiree benefit is about $1,000/month 3.3 workers have been sharing cost of $300 each But paid 13.6% over cost 1990-2008, $341 each When 2 workers pay same $341 each, then average retiree apparently gets $682 per month, or 32% less. But shortfall after 2040 is 25%, NOT 32%, because 1) NRA increases again under PL 2) Revenue from tax on benefits is rising 3) Average benefit rises slower than average earnings with increasing longevity---more COLAs put benefits further below the general standard of livingof current workers
4) Options for Getting OASDI in Long-Range BalanceRecent Commissions and Congressional Proposals Raise Payroll tax at the top---increase the $110,100 taxable maximum Raise Revenue on the middle---make employer-sponsored group health premiums taxable Reduce benefits for retirees and not disabled---increase normal retirement age Exceptions for long career low earners? Reduce benefits for all, or most---reduce the benefit formula factors Can make reductions only, or mainly for higher average earners Lower benefits mainly for the oldest old---reduce the COLA Ultimately our elected representatives will decide What benefits---at what cost for complete list of options and plans: http://www.ssa.gov/OACT/
5) Doing It Better This TimeCongress has always acted in time---but we can do better Social Security Trust Fund Assets (end of year) 1957-2009 18.0 16.0 14.0 Payroll Tax Rate rises from 6% in 1961 12.0 to 9% in 1971 as Program Matures 10.0 1977 1983 Percent of GDP Amendments Amendments 8.0 1972 Amendments 6.0 Trust Fund Assets Build, Holding Down 4.0 Publicly Held Debt 2.0 0.0 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
5) Doing It Better This Time The 1983 Amendments extended Trust Fund Solvency But scheduled benefits were not sustainable with the scheduled taxes Sustainable Solvency---The Solution Requires solvency through 75 years---AND Reserves stable as percent of Program Cost in 75th year Developed in 1994-6 in response to 1983 Amendments 1994-6 Advisory Council, and Bob Kerry and Alan Simpson This Challenge has been addressed by virtually every proposal since 1995
