Social Security – What are the Facts?
by Jennifer Wagner
Ms. Wagner is a senior actuarial science major at Robert Morris University. She is writing her International Honors Thesis on a comparison of retirement saving systems in the U.S. and Australia, where she spent a semester abroad.
This session brought together two experts on Social Security, Dr. Thomas Saving of Texas A&M University and former Public Trustee of the Social Security and Medicare Programs, and Stephen Goss, ASA, MAAA, Chief Actuary of the Social Security Administration.
Since it's inception in 1935, Social Security contributions have always been made to the Social Security Trust Fund by way of the OASDI pay–roll tax on capped income. Workforce demographics and longevity have changed quite a bit since Social Security's inception, causing solvency problems. Amendments to the Social Security Program in 1977 and 1983 primarily created wage–indexing and initiated a gradual raise in the retirement age, which had previously been 65. Solvency continues to be a problem, however.
According to Saving, to avoid solvency by 2080, we need to lower costs by one–third or increase revenue by half, starting now. Currently, adjustments to the benefit formula are getting the most attention in Congress, while other options include further increases in the retirement age, modifying the cost–of–living adjustments and the pay–roll tax rate, eliminating the taxable minimum income cap, and extending coverage (and taxes) to all state and local government employees not currently covered. A major face lift to the Program with the creation of Individual Accounts has been recommended by the George W. Bush Administration. Goss explained the financing ramifications associated with these options, and their potential impact on solvency.
The panelists agreed that over the short term, any changes will not be attractive, but that over the long term, practical reforms can return the Social Security Program to good fiscal standing. Without change, the Trust Fund will run out and benefits will be reduced, possibly drastically. Clearly, it is in our best interest to work toward reform in the near future, even though overcoming the political hurdles will be difficult.