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Framing the Social Security Funding Problem

Absent changes in its funding or benefits policies, the Social Security Trust Fund won't have enough money to fully meet its obligation to U.S. retirees by the year 2037. While that's a ticklish problem, it's not beyond resolution, according to William Halter, deputy commissioner of the Social Security Administration.

Speaking at the 2000 National Forum of the Stable Value Investment Association in Washington, D.C., Halter said the funding gap confronting the Social Security system over the next 75 years equates to just under 2% of the nation's payroll. Put another way, increasing Social Security payroll taxes by 2% now would remove Social Security as a source of worry for the vast majority of U.S. citizens alive today.

Of course, nobody is seriously suggesting an increase in payroll taxes right now. But Halter's analysis does help to frame the magnitude of the problem.

"The reforms we need are doable," Halter told his audience. "We don't have to eliminate the Social Security system, but the earlier we address the problem, the easier it will be to address."

On the surface, the pay-as-you-go Social Security system, in which current workers fund the benefits of those who are already retired, looks healthy right now. Halter explained that this year, the Trust Fund will operate at a $150 billion surplus, marking the 16th straight year of surplus operations. It will continue to operate at a surplus until the year 2015, at which point income will dip below outflows. Finally, by the year 2037, SSA actuaries project that the Trust Fund will only be able to fund 72% of its legislated outflow.

The reason for the projected shortfall is twofold. First, the 76 million baby boomers born from 1946 through 1964 will begin to retire in 2010, which will put a heavier funding burden on the smaller, succeeding generation of workers financing their benefits. Second, people today are living longer, and so are drawing more in Social Security benefits than preceding generations.

What's especially troubling, Halter said, is that these developments come at a time when Social Security is still the primary source of retirement income for millions of retired U.S. citizens.

"When Social Security system was founded in 1935, more than half the elderly population was estimated to be living in poverty," Halter said. "In 1959, the number of elderly living in poverty had fallen to 35%, and today it is 11%, which is lower than the rate for many other age groups. But if Social Security went away tomorrow, more than half of our elderly would wake up in poverty."

While declining to endorse the views of either political party on how to assure Social Security's solvency beyond 2037, Halter hammered at the notion that something must be done sooner rather than later, and that any solutions adopted should be well thought out and clearly specified.

"In 1983, the Social Security Trust Fund really was on the verge of a crisis, it was imminently going to go bust," Halter reminded his audience. "At that time, we put in place many of the changes that people are only starting to talk about today, such as gradually raising the normal retirement age beyond 65, so that for those who retire in 2027, the standard retirement age will be 67. This time, we would like to avoid waiting until the system is in crisis.

"Youngsters feel that Social Security will never be there for them," Halter concluded. "That's going too far. This problem is not so large that young people can't have a Social Security benefit."

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