Social SecurityDifferent Approaches for Addressing Program Solvency Gao ID: HEHS-98-33 July 22, 1998
The aging of the baby boomers, lower fertility rates, and increasing longevity have eroded the long-term solvency of the Social Security program. The system's annual cash surpluses are now projected to decline substantially beginning around 2008, and by 2013, benefit payments are expected to exceed cash revenues. The Social Security Trust Funds are forecast to be depleted by 2032, at which time revenues will be able to pay no more than 75 percent of promised benefits. With a national debate underway on how best to resolve Social Security's long-term financing problems, GAO reviewed the various perspectives underlying the solvency debate, reform options within the current program structure, and issues that would arise if Social Security were restructured to include individual retirement accounts.
GAO noted that: (1) many options exist for restoring long-term solvency within the current program structure; (2) these possibilities include raising the retirement age, altering the benefit formula, reducing the cost-of-living adjustment, investing Social Security Trust Fund surpluses in the stock market, and mandating participation of workers who are currently excluded; (3) some combinations of these changes could restore program solvency while retaining the program's social insurance features; (4) while these options generally require reducing benefits or raising revenues, their effects on workers and retirees might be mitigated if adjustments were made sooner, not later; (5) proposals for more fundamental program changes have the potential to increase returns overall but would entail increased risk; (6) moving even part of social security to individual accounts would require careful consideration of the issues raised by such a fundamental change; (7) the consequences for the insurance aspects of the current social security system would require close scrutiny if social security were wholly or partly privatized; (8) most of the reform proposals envision substituting advance funding for the largely pay-as-you-go system that exists today; (9) in principle, advance funding of social security benefits could lead to an increase in national saving; (10) increased saving could lead to higher rates of economic growth and better enable future generations to support themselves and future retirees; (11) moving to an advance funded system would entail substantial transition costs that could offset any potential savings for a number of years; (12) over the years, social security has evolved to be more than a retirement program; (13) social security not only provides the floor for an adequate retirement income, it also insures families in the event of the death or disability of the earner and helps provide retirement income security for low-income workers; (14) restoring the system to financial solvency will require fundamental choices about such issues as the strength of guarantees of retirement income to the nation's elderly, levels of insurance for working families, and the role of government in providing retirement income; and (15) because such decisions will affect the nation and its economy for years to come, they should be made with full knowledge and debate of the trade-offs inherent in each proposed change.