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Diane Owens Speaker/Consultant Step Up Your Social Security
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On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller in the amount of $22.54. Miss Fuller started collecting benefits at age 65 and lived to be 100 years old.
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3 Part Social Insurance Program ◦ Retirement (at 62 or older) ◦ Disability (at any age) ◦ Survivors of deceased workers Mandatory Payroll Taxes ◦ Equal part from employer/employee ◦ Covers about 94% of workers/self-employed Defined Benefits ◦ Progressive formula replaces “lost” earnings ◦ Includes benefits for qualified family
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2009 Income: Payroll Tax 82.6% Trust Fund Interest 14.7% Taxation of Benefits 2.7%
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2009 Revenue Used for: Benefit Payments 83.7% Increase Trust Funds 15.1% Administrative Expenses ~1%
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Short-term solvency guaranteed. ◦ Trust Funds will continue to increase until 2025 and will pay full benefits through 2037. Long-term solvency still needs to be addressed. ◦ Fewer workers to beneficiaries: 3.2 to 1 now Will be 2.1 to 1 by 2031; 1.9 to 1 by 2085 ◦ Increased longevity at age 65: Projection for 2060 Average 3 years longer: Men 20.9 years & Women 23.1 years
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If no changes are made, beginning in 2037 about 78% of benefits could still be paid from current year revenues. 2015 2025
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“Choosing the Nation’s Fiscal Future” – Joint Report from NAPA/NRC and Title IV H.R. 4529 “The Roadmap for America’s Future Act of 2010”
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Retains Social Insurance structure* No changes to disability or survivors benefits Outlines 4 options for sustainable solvency: 1.Reduces future rate of growth of benefits with no tax increases 2.Combination: $2 reduction in benefits for each $1 increase in payroll taxes 3.Combination: $1 reduction in benefits for each $2 increase in payroll taxes 4.Increases payroll taxes to fund current law scheduled benefits for future retirees *See Chapter 6 of Report at www.ourfiscalfuture.orgwww.ourfiscalfuture.org
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Option 1: Reduce Growth of Future Benefits ◦ Raise Full Retirement Age to 67 in 2012 & index future increases to average life expectancy ◦ Phase-in higher minimum retirement age (now 62) ◦ Reduce Cost of Living raises by ~.3% ◦ Reduce growth in benefit rates for highest 70% of earners while protecting low earners Effects: ◦ No increase in taxes; benefits grow < real wages ◦ Medium earner benefits would replace 27% of average earnings in 2050 (compared to 40% now).
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Option 4: Increase Payroll Taxes ◦ Raise taxable maximum to cover 90% of all earnings Currently at ~ 84% of earnings ◦ Raise combined tax rate gradually to 14.7% by 2080 ◦ Add 2 nd Tier (progressive) tax on earnings above maximum with no credit toward benefits: Start at 2% in 2012 and rise to 5.5% in 2060 Effects: ◦ Very high earners would see ~109% payroll tax increase by 2050. Current law taxes about 1/2 of their earnings
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Modifies Benefit Computations in 2018: ◦ Reduce future growth in benefit rates: Link to CPI instead of National Average Wage ◦ Protect rates of low earners ◦ Raise Full Retirement Age to 67 earlier & index further increases to average life expectancy Modifies Revenue Provisions by: ◦ Subject total premium cost of employer health plans to payroll tax ◦ Transfer General Tax Revenue to/from Trust Funds as needed to maintain solvency
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Establishes voluntary individual accounts: ◦ Allows workers under 55 to transfer part of payroll tax to personal account (PSA) Estimated 50% participation rate ◦ Offsets Social Security retirement/spousal/survivor benefits based on level of participation ◦ Invests assets in a PSA to be paid out as a life annuity on retirement (or to estate) ◦ Guarantees account balance when annuity begins would at least = contributions plus CPI-W increases (~ 2.8% per year).
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Effects: ◦ Requires General Tax Fund transfers to Trust Fund from 2037 through 2056 ◦ Offset by Trust Fund transfers back to General Tax Fund 2063 through 2082 ◦ Eventually PSA offsets would reduce traditional retirement benefits to zero ◦ Effects on financial markets of increased demand for equities/bonds not clear ◦ See http://www.ssa.gov/OACT/solvency/index.htmlhttp://www.ssa.gov/OACT/solvency/index.html
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Reduce Cost of Living Adjustments Change Benefit Computation Raise FRA to age 67 earlier, then increase to 68 or later Raise Payroll Tax Rates Raise Taxable Maximum Earnings Faster Cover all State & Local Government Employees Invest Trust Fund in Marketable Securities Change Taxation of Benefits to match Private Pensions Transition from Social Insurance program to smaller retirement benefit with voluntary personal account. See www.ssa.gov/OACT/solvency/provisions/index.htmlwww.ssa.gov/OACT/solvency/provisions/index.html
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