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Social Security:  Need for Action

On Monday, March 23, 2005, Treasury Secretary Snow, Chairman Of The Trustees Report, Announced The Results Of The 2005 Annual Trustees Medicare And Social Security Report:

The Trustees’ reports provide an objective presentation of the financial status of the trust funds.

  • The Problems Facing Social Security Are Getting Closer.  The Social Security report show that Social Security cash flows peak in 2008 and turn negative in 2017, one year earlier than previously projected.  The trust fund itself will be exhausted in 2041, also one year earlier than previously projected. The unfunded obligation, that is, the difference between the present values of Social Security inflows and outflows (plus the trust fund), has increased to $11.1 trillion a permanent basis, and $4.0 trillion over the next 75 years.  
  • Only Large Tax Increases Would Close This Gap.  Taxes would have to be raised immediately by 3.5 percentage points, or benefits reduced immediately by 22 percent, to make the system whole on a permanent basis.

Social Security Faces Real Problems That Must Be Addressed Today.

  • There Are More People Collecting Benefits.  As the Baby Boom generation begins retiring in 2008, there will be a dramatic rise in retirees who will be living longer.  Social Security is a pay as you go system that leaves workers with IOUs, not personal accounts.

  • Benefits Are Growing Faster Than Inflation.  Today's 20-year-olds are promised benefits 40 percent higher than seniors retiring today.

  • Fewer Workers Are Supporting Each Retiree.  In 1950, there were 16 workers for every retiree.  Today, there are 3.3 workers for every beneficiary.  By the time today's 20-year-olds retire, that number will drop to 2 workers for every beneficiary.

  • These Problems Signal A Looming Crisis.  In 2008, the first Baby Boomers will begin to retire putting added strain on the system.  In 2017, the system will begin paying out more than the system takes in.  And in 2041, the trust will be insolvent.  This will mean drastically higher taxes, massive new borrowing or sudden and severe cuts in Social Security benefits.

The President Has Laid Out Basic Principles That Must Guide Reform.

  • No Changes For Those Born Before 1950.  Those who are at or nearing retirement will see no changes to their Social Security benefits, but they too want to see the system strengthened for their children and grandchildren.  The President welcomes the wisdom of seniors, and he welcomes their input on how to save Social Security for future generations.

  • We Must Fix Social Security Permanently.  The President wants to fix Social Security once and for all so that our children and grandchildren do not face these same problems.

     
  • No Increase In Payroll Tax Rates.  Increasing the payroll tax rate would burden workers and harm our economic strength.

Voluntary Personal Retirement Accounts Are An Important Part Of Comprehensive Reform.


  • Personal Accounts Allow Younger Workers To Create A Nest Egg For Retirement That Can Never Be Taken Away By The Government.  Personal accounts allow younger workers to save a portion of their payroll taxes in an account that they own and control.
  • Voluntary Personal Retirement Accounts Give Younger Workers A Chance To Earn A Better Return On Their Money.  
If a young person earns an average of $35,000 a year during his or her career and contributes the maximum amount to a personal account each year, he or she can expect to have about a quarter million dollars saved by retirement.
  • Personal Accounts Could Be Passed On To Children.  Personal accounts will give workers an opportunity to build a nest egg and pass on the wealth they have built up to their children.

  • Personal Accounts Could Only Be Safely Invested.  The accounts could be invested only in a limited number of secure bond and stock index funds, including a life-cycle fund designed to protect workers from sudden market changes on the eve of their retirement.

U.S. Department of the Treasury, Office of Public Affairs  |  FirstGov  |  Last Updated: March 24, 2005