Social Security ssa.gov archived quotes Jan 2005

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Selected Archived From Social Security's Future - FAQs 1/21/2005


[http://www.ssa.gov/OACT/TR/TR04/index.html The 2004 OASDI Trustees Report Updated March 23, 2004]


Q.Is there really a Social Security trust fund?

A.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 $1.5 trillion at the beginning of 2004, and Social Security receives more than $80 billion annually in interest from them. However, Social Security is still basically a "pay-as-you-go" system as the $1.5 trillion is a small percent of benefit obligations.

Social Security`s Future

Q.I hear that Social Security has a big financial problem? Why?

A.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 five years from retirement, and the birth rate is low. The result is that the worker-to-beneficiary ratio has fallen from 16-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.

Q.What will happen if Social Security is not changed?

A.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 Chief Actuary states, "If benefits were reduced to meet the shortfall in revenue for the combined program, the reduction would need to be 27 percent starting with the exhaustion of the Trust Fund in 2042 and would rise to 32 percent for 2078. Alternatively, if additional revenue were provided beginning in 2042, revenue equivalent to a payroll tax rate increase of about 3.1 percentage points (from 12.4 percent under current law to about 15.5 percent) would be needed for the year. The additional revenue needed for 2043 would be equivalent to a payroll tax rate increase of about 4.5 percentage points for the year. Thereafter, the amount of additional revenue needed would gradually rise, reaching an amount equivalent to an increase in the payroll tax rate of about 5.9 percentage points for 2078 (or about 50 percent higher than today's rate). See the Trustees Report

Q.How big is the future problem?

A.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 total net Social Security cash flow for years 2004 through 2078 is projected to be nearly -$5.2 trillion. When the trust fund balances of $1.5 trillion at the beginning of 2004 are added to this value, we get a financial shortfall (or unfunded obligation) for the 75-year period of $3.7 trillion. This unfunded obligation indicates that if an additional $3.7 trillion had been added to the trust fund at the beginning of 2004, 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 Trustees Report

Q.If Social Security's financial problem is so long term (negative cash flows not until 2018 and trust fund exhaustion in 2042), why do we need to fix it now?

A.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 Trustees Report

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