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 in
2001, preserve scheduled benefits, including cost- of-living increases,
for near-retirees. President Bush has defined a "near-retiree"
as someone aged 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 69 in 2040 your
scheduled benefits could be reduced by 26 percent and could continue
to be reduced every year thereafter from presently scheduled levels.
See the 2006 Trustees Report. |
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I'm 26 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 60
in 2040, benefits for all retirees could be cut by 26 percent
and could continue to be reduced every year thereafter. If you
lived to be 100 years old in 2080 (which will be more common by
then), your scheduled benefits could be reduced by 30 percent
from today's scheduled levels. See
the 2006 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 $1.9 trillion at the beginning
of 2006. Social Security received $94 billion in interest from
bonds in 2005. However, Social Security is still basically a "pay-as-you-go"
system as the $1.9 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 nearing retirement, and the birth rate
is low. The result is that the worker-to-beneficiary ratio has
fallen from 16.5-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 Trustees state, "If no
action were taken until the combined trust funds become exhausted
in 2040, much larger changes would be required. For example, payroll
taxes could be raised to finance scheduled benefits fully in every
year starting in 2040. In this case, the payroll tax would be
increased to 16.65 percent at the point of trust fund exhaustion
in 2040 and continue rising to 17.78 percent in 2080. Similarly,
benefits could be reduced to the level that is payable with scheduled
tax rates in every year beginning in 2040. Under this scenario,
benefits would be reduced 26 percent at the point of trust fund
exhaustion in 2040, with reductions reaching 30 percent in 2080.”
See the 2006 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 financial shortfall (or unfunded obligation) for the
75-year period is $4.6 trillion. This unfunded obligation indicates
that if an additional $4.6 trillion had been added to the trust
fund at the beginning of 2006, 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 2006 Trustees Report.
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If Social Security's financial problem is so long term (negative
cash flows not until 2017 and trust fund exhaustion in 2040),
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 2006 Trustees
Report. |
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2006 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. Their July
2001 report and an updated actuarial
memorandum are 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 in his 2005 State of the Union message,
the President laid out basic principles to guide reform:
- We must make Social Security permanently sound, not leave
it for another day.
- We must not jeopardize our economic strength by raising payroll
taxes.
- We must ensure that lower income Americans get the help they
need to have dignity and peace of mind in their retirement.
- We must guarantee that there is no change for those now retired
or nearing retirement.
- We must take care that any changes in the system are gradual,
so that younger workers have years to prepare and plan for the
future.
- We should make Social Security a better deal for younger workers
through voluntary personal retirement accounts.
The bipartisan commission he appointed in 2001 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 (TSP). This very popular plan
for federal employees and members of Congress allows a choice
of five highly diversified, low-cost mutual funds. In the TSP,
no direct investments in individual stocks are allowed. Later
this year the TSP will be adding a new choice—a lifecycle
fund that automatically reduces a person’s investment in
equities as he or she grows older. |
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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 $4.6 trillion, in today's present-value dollars, would
be needed to pay currently scheduled benefits over the next 75
years. The amount needed to assure permanent solvency over the
infinite horizon is $13.4 trillion. |
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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.
See SSA’s monthly publication International
Update for recent developments in the public and private pension
systems of other countries. |
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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 30 countries, including
Britain, Australia and Sweden, have established versions of personal
accounts. |
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