Retirees Today

Social Security at a Crossroads

Seniors and baby boomers ask: Are cuts, collapse inevitable to the system that touches the lives of most Americans?

Social Security is at a crossroads in its long and successful history. Senior citizens are concerned their benefits will be cut. And many working people are afraid their benefits will disappear before they retire.

Why all the fretting over a system that's been in place for 60 years, has never missed its monthly benefit payout, and maintains Trust Funds that currently hold $500 billion in reserves?

Demographics and economics are changing Social Security's playing field. The key factor is the "baby boom" generation, Americans born between 1946 and 1964. In 2011, the oldest members of this generation will start to reach 65, placing an increasing burden on the Social Security system.

The combination of retired baby boomers and longer life expectancies means that in the early decades of the 21st century, 20 percent of the population will be 65 or older-the highest percentage ever.

Changing Numbers. Today there are about five people ages 20 to 64 for every American 65 or older. By 2030, however, the proportion will drop to slightly less than three to one. And since working people pay for the Social Security benefits of those who are already retired (just as the current generation of retirees once paid for their parents' retirement), some younger workers fear there won't be enough money to sustain the system in the future.

Are they right to be afraid? Many experts say no. They say Social Security is in excellent financial condition. And while there are reasons for concern down the road, there are also reasons for optimism. Here are a few of them:

• The Social Security Trustees, charged with assessing the solvency of the system 75 years into the future, have reported that in 2029-at the height of the baby boom retirement-payroll taxes will cover more than 70 percent of current benefit projections for that year. Corrections in the system must be made, but it will never go broke.
• While the percentage of elderly will increase in the next century, childbirth is expected to decrease. Overall, there will be a decline in the number of total dependents (children and retirees) that American workers support. In 1965, there were 95 dependents for every 100 working-age Americans. In 2030, projections show only 79 dependents. So even though society's spending on the elderly may increase, diminishing costs for child-rearing will help balance the burden on working people.
• The Social Security system is highly efficient and cost-effective. Administrative costs are only about 1 percent of benefits. This compares with administrative costs of 12-14 percent for private insurance, according to the American Council of Life Insurance.
• In the past, every time the Social Security Trustees have indicated a problem in the system, a solution has been found and the system repaired. This has occurred despite partisan wrangling and inflammatory rhetoric from both Republicans and Democrats.

Why have politicians ultimately come together to solve Social Security's problems? Because the system is important in the lives of 95 percent of Americans and enjoys immense popularity.

Solutions Suggested. The debate over Social Security reached a crescendo in January when a 13-member advisory panel appointed by Health and Human Services Sec. Donna Shalala delivered its final report. The panel presented three different recommendations, each of which would place a portion of Social Security funds in private investments.

"Congress should consider the wide range of options for Social Security's future and not make any quick decisions in favor of privatization," said John Slaven, chair of the AFSCME Retiree Council. "And they should listen to retirees. We understand the importance of Social Security and we want our children and grandchildren to benefit, too."