Congressional Brief: Social Security

Social Security is the cornerstone of retirement security in the United States today. A third of Americans depend on the program for almost all their retirement income; without it, one-in-five would have no retirement income. But the program so many depend on simply cannot afford what it promises today’s workers and faces a shortfall of more than $13 trillion over the next 75 years. Reforms are desperately needed.

How Social Security Reform Could Benefit Workers

Congress is once again considering changes to Social Security in an attempt to “save” the program. Social Security benefit payments have exceeded tax revenues since 2010; the funding deficit is growing and, barring reform, will continue to grow indefinitely. Higher tax revenues are necessary to fund benefits as they are currently calculated.

Measuring Social Security's True Liability

Every year the Social Security Trustees publish a report on the fiscal solvency of the program. It details the program's unfunded liabilities, which is what the government will still owe after it uses current and future tax receipts to pay for current and future retiree benefits.

Double-Dipping Social Security

The current Social Security system allows individuals to claim reduced, early retirement benefits beginning at age 62.  Individuals who wait until the full retirement age to collect receive about 30 percent more in monthly benefits.  If they wait until age 70 to collect, their benefits will be about 60 percent larger than at age 62. So what choice should people make?

Giving No Credit Where It Is Due: Social Security Disability

The disability insurance component of the U.S. Social Security system is funded by a 1.8 percent payroll tax. It pays benefits to disabled adults who have earned a required number of credits based on previous years of work. The benefit amount is based on the wages taxed for Social Security. Most people do not realize that the system penalizes those who leave the workforce for a few years. The system often penalizes women, who are more likely to move in and out of the workforce.

Work and Retirement

Over the next three decades, the number of retirees will double. However, due to declining fertility rates, the number of workers contributing to the system will fall from three for each retiree receiving benefits to two for each retiree. This will place a severe strain on working Americans to pay promised benefits to the elderly.

How Generous Are Social Security and Medicare?

Without changes, Social Security and Medicare will grow relative to the earnings and compensation of the workers who fund the programs. Further, the rate at which these entitlement benefits replace preretirement earnings of successive cohorts of retirees will rise. By the time today's teenagers retire, net Medicare and Social Security benefits will rival their average preretirement price-indexed wages.

Social Security and Progressive Indexing

President Bush has barnstormed across the country promoting Social Security reform. So far, the president has proposed two primary ideas: 1) Allow younger workers to prefund a portion of their retirement benefits by creating personal retirement accounts equal to 4 percent of wages, and 2) Use "progressive indexing" to reduce the growth in benefits for higher earners.

Galveston County: A Model for Social Security Reform

The current debate over Social Security reform is reminiscent of the discussions that occurred in Galveston County, Texas, in 1980, when county workers were offered a retirement alternative to Social Security: At the time they reacted with keen interest and some knee-jerk fear of the unknown. But after 24 years, folks here can say unequivocally that when Galveston County pulled out of the Social Security system in 1981, we were on the road to providing our workers with a better deal than Franklin Roosevelt’s New Deal.

Social Security Reform: The Cost of Delay

Just how big is the funding shortfall faced by Social Security? What is the cost of delay in implementing a solution? The magnitude of the problem can be quantified in two ways: 1) the funds required each year in addition to projected payroll tax revenues, or 2) the present value of the total additional funding required in all future years.

What We Can Learn from the British Experience with Personal Accounts

Britain has used personal accounts in its public pension system longer than any other industrial country. Personal accounts fund individual workers’ retirement benefits through savings, whereas pay-as-you-go systems, including the U.S. Social Security system, fund elderly benefits from current workers’ taxes. The U.K. experience provides a good model of how not to do things in America. It shows that personal accounts can be good or bad, depending on how they are designed.

Answering the Myths about Social Security

Social Security reform is at the top of President Bush's second term agenda – and for good reason. In the next decade, two monumental shifts will occur: 1) the first of the 77 million baby boomers will start drawing benefits and stop paying payroll taxes, and 2) funds available to pay Social Security and Medicare benefits will fall increasingly short of promises we have made.

Social Security Reform: Keeping Administrative Costs Low

Public pension programs – including the U.S. Social Security system – tax workers to pay current retirees' benefits. But in the United States, as in other developed nations, falling birthrates and rising life expectancies leave fewer workers to support each retiree. Without reform these factors will eventually require large tax increases, large benefit cuts or both to keep the programs alive.