Sunday, March 14, 2010
Should We Be Talking About Social Security
Carole Fleck | Source: AARP Bulletin Today
For the first time in a generation, America’s largest social program is spending more on benefits than it’s collecting in taxes. And that has fueled talk once again about the need for Social Security reform.
In a January poll by the Pew Research Center for the People & the Press, Social Security ranked as respondents’ biggest concern after jobs, the economy and terrorism. Two-thirds said it should be a top priority for the president and Congress.
Blame the recession for straining Social Security. High unemployment, anticipated by Federal Reserve Chairman Ben Bernanke to last through at least 2012, has resulted in fewer workers paying taxes into the system. At the same time, millions of older people claimed their benefits early to replace or supplement their income. Today, 43.5 million retirees and 10.2 million people with disabilities collect monthly benefits.
Those factors have caused Social Security to dip into the red, according to the system’s chief actuary, Stephen Goss. “This is the first time that Social Security is taking in less than it’s paying out in benefits,” he says.
A demographic crunch
Even before the recession hit, Social Security was projected to start losing money in about six years, thanks in part to the looming retirements by boomers. Lower birth rates and higher life expectancies are also contributing to the drain on the system.
Between 1975 and 2010, Goss says, 3.3 workers paid taxes for every beneficiary, funding about $900 of a monthly $1,000 benefit. But projections show that between 2010 and 2035, when boomers retire, the ratio will fall to two workers per beneficiary, funding only about $500 of a retiree’s $1,000 benefit.
“That’s a big change,” he says, resulting in “a substantially higher cost” for the program if current benefit levels are retained.
Goss was quick to point out, however, that the Social Security trust fund has about $2.5 trillion in assets that can be tapped to pay out benefits.
In the latest Social Security trustees report, the program was projected to pay full benefits through 2036 using the trust fund reserve. In 2037, he says, 76 cents in taxes will be collected for every $1 going out—meaning beneficiaries may only see about three-fourths of what their payment would’ve been.
At a February campaign rally for Senate Majority Leader Harry Reid in Nevada, President Barack Obama suggested one way to beef up the system’s long-term stability: Lift the cap on earnings subject to the Social Security tax. Currently, the earnings cap is $106,800 a year. Raising the cap would increase the amount of Social Security tax that wealthier people pay.
Rep. Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee, offered a more radical approach. He proposed giving workers under age 55 the option of investing more than one-third of their current Social Security taxes into private retirement accounts. President George W. Bush proposed a similar approach in 2005, but the idea stalled in Congress.
Read the full story at aarp.org.
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