Social Security
benefits are inteded to replace a percent of prior earnings. Replacement
rates have been fairly stable for the past 25 years, but net replacement
rates are now declining and will continue to decline in the future, for
two reasons.
1. Scheduled
increase in age of eligibility for full benefits from 65 to 67 will
gradually lower benefits at any age when they are claimed.
2. Medicare Part
B premiums (deducted directly from benefits) will take a bigger bite
because premiums go up with the cost of health care, which is projected
to rise faster than Social Security benefits.
Benefits for an
average earner retiring at 65 in 2005 replaced 39% of prior earnings
after Medicare premiums were deducted. By 2030, this net replacement
rate is projected to drop to 32%.
Experts Say Plan for Targeted Improvements, 75-Year
Financing Strengthens Social Security
National Academy of Social Insurance suggests
Americans will cheer their plan
Nov. 12, 2011 –
A non-partisan organization staffed by experts in social insurance - the
National Academy of Social Insurance (NASI) - has presented a fix for
Social Security that includes benefit improvements and a long-range
financing plan that it thinks the American people will cheer.
Such an approach
would secure Social Security for the future, provide peace of mind to
workers and young Americans that they can count on the program, and
demonstrate that Washington is listening to what the public wants,
according to the new policy paper,
Strengthening Social Security for the Long Run.
"Opinion surveys
consistently show that the public, regardless of political affiliation,
recognizes Social Security is more important now than ever," said NASI
President Janice Gregory. "As Americans live through a time of great
economic uncertainty, they say they want to reinforce rather than weaken
the program."
NASI is a
nonpartisan organization made up of the some of the nation's leading
experts on social insurance.
In charting
Social Security's future,
the report says it's useful to remember how Congress addressed the
immediate funding crisis the program faced in 1983.
Following the
recommendations of the bipartisan commission chaired by Alan Greenspan,
lawmakers enacted a reasonably balanced mix of contribution increases
and reductions in benefits to get Social Security safely through the
1980s.
But when it came
to closing out the long-term deficit then facing the program, Congress
added only a further benefit reduction by phasing in an increase in the
retirement age from 65 to 67. That benefit reduction is still being
phased in today.
Congress did not add any new revenue, even though
providing future revenue had been an accepted practice in the past.
"In current
policy discussions about the long-term financing of Social Security,
reforms enacted in 1983 often are held up as a model of balanced
political compromise. But that's not the whole story," said NASI Vice
President Virginia Reno.
Reno served on
the staff of the Greenspan Commission. Gregory was instrumental in the
work of the House Ways and Means Committee when the reforms were
enacted.
Social
Security Options:
America Speaks
Proposals
% Support
Raise full-benefit age to 69
39
Limit Increase in starting benefits
24
Lower measure of inflation
24
Raise FICA contribution rate — total
50
To 13.4%
20
To 14.4%
30
Raise cap to cover 90% of earnings
60
Create personal savings accounts
17
No change
13
Source:
America Speaks 2010
America Speaks
finds that Americans oppose benefit cuts
On
June 26, 2010, the
America Speaks
civic engagement project sought to gauge public opinion on options for
reducing the federal budget deficit.
In 57 town hall meetings around the
country, about 3,500 citizens were given background information and an
opportunity to discuss policy options with peers before expressing their
preferences.
In
the final tally, no option to reduce Social Security benefits received
support from a majority of participants.
A majority (60 percent) was
willing to raise the taxable earnings cap to cover 90 percent of
earnings; and 50 percent of participants were willing to increase FICA
contributions to improve the solvency of the Social Security program.
From
Strengthening Social Security for the Long Run.
Unlike in 1983,
the Social Security program today does not face a short-term financing
problem. Moreover, the percent of the population receiving Social
Security benefits will increase from about 17 percent today to 25
percent in 75 years, but the cost of the program as a percent of the
economy will increase only from about 5 percent to about 6 percent.
There are at
least three reasons to be concerned about the adequacy of Social
Security benefits in the future, according to the brief. First, benefits
today are modest – about $14,000 per year on average in 2010 – but are
the main source of income for most of the elderly.
Second, benefits as a
percent of prior earnings are projected to decline in the future. Third,
other sources of retirement income are becoming less secure and less
adequate.
Making modest
improvements to address these concerns and covering the projected
long-term shortfall facing Social Security would require revenue
increases equal to slightly more than 2 percent of taxable payroll over
75 years, according to the authors.
There are many
ways to raise that revenue, including lifting the FICA contributions cap
to again cover 90 percent of earnings as Congress intended and
scheduling potential FICA rate increases for points in the distant
future when additional funds would strengthen the program.
"It's possible
to design a financing plan for Social Security that is broadly
affordable, consistent with the program's history and principles, and
capable of strengthening the program for the long run," Gregory said.
"That would free policymakers to consider strategies to improve the
adequacy of Social Security benefits rather than cutting them.
"Social
Security's long-term funding challenge can be met in ways that give
Americans greater confidence in their own economic future," said
Gregory, who released the paper at a Capitol Hill briefing.
Summary of the
Brief
Strengthening Social Security for the Long Run
By:
Janice M. Gregory, Thomas N. Bethell, Virginia P. Reno, and Benjamin W.
Veghte
Summary: In
policy discussions regarding the long-term financing of Social Security,
the reforms enacted in 1983 often are held up as a model of balanced
political compromise. But that is not exactly what happened. Only the
short-term reforms, aimed at getting the program safely through the
1980s, contained a mix of changes that affected contributors and
beneficiaries more or less evenly.
The piece that Congress added to
address the remaining long-term shortfall was not a compromise: it was
solely a benefit cut that is still being phased in today.
This brief
describes the actions taken in 1983; examines why there is growing
concern about the inadequacy of Social Security benefits going forward;
documents the strong public support for maintaining and improving the
program; suggests some ways in which benefit adequacy can be modestly
enhanced at affordable cost; and outlines an example of a 75-year
financing plan to strengthen Social Security for the long run.
To download the
pdf copy of the brief,
Click Here.
The National
Academy of Social Insurance (NASI) is a non-profit, nonpartisan
organization made up of some of the nation's leading experts on social
insurance. Its mission is to promote understanding of how social
insurance contributes to economic security and a vibrant economy.
Links to More News
on Social Security in Our Archives
Bi-partisan
commission charged with identifying policies to improve the fiscal
situation of the federal budget got off to thunderous start -
Nov. 11, 2010
