Frequently Asked Questions About Social Security's Future

I am retired and receiving a monthly check from Social Security.  Are my monthly payments going to be cut?

No, there are no plans to cut benefits for current retirees. In fact, benefits will continue to be increased each year with inflation.  Even without any changes, current benefits are expected to be fully payable on a timely basis until 2041.

I'll be retiring in the next five to 10 years. Can I expect my presently scheduled benefits to be paid to me at retirement?

Most reform plans preserve scheduled benefits, including cost-of-living increases, for near-retirees.  President Bush has defined a "near-retiree" as someone aged 55 and older.  However, without change it is expected that the program will no longer be able to pay current benefits in full starting 2041.  At that time it is expected that only 78 percent of currently scheduled benefits will be payable.

My parents are receiving Social Security payments. Should I be worried that their monthly checks will be cut and that I will have to make up the difference?

No, there are no plans to reduce benefits for current retirees.  In fact, benefits will continue to grow annually with inflation.  Even without any changes, current benefits are expected to be fully payable on a timely basis until 2041.

I am receiving disability benefits from Social Security.  Should I be worried that my monthly check will be cut?

Most plans do not reduce the benefits of currently disabled beneficiaries.  However, without change it is expected that the program will no longer be able to pay current benefits in full starting 2041.  At that time it is expected that only 78 percent of currently scheduled benefits will be payable.

I'm 35 years old in 2007.  If nothing is done to change Social Security, what can I expect to receive in retirement benefits from the program?

Unless changes are made, at age 69 in 2041 your scheduled benefits could be reduced by 22 percent  and could continue to be reduced every year thereafter from presently scheduled levels.  See the 2008 Trustees Report.

I'm 26 years old in 2007.  If nothing is done to change Social Security, what can I expect to receive in retirement benefits from the program?

Unless changes are made, when you reach age 60 in 2041, benefits for all retirees could be cut by 22 percent and could continue to be reduced every year thereafter. If you lived to be 101 years old in 2082 (which will be more common by then), your scheduled benefits could be reduced by 25 percent from today's scheduled levels. See the 2008 Trustees Report.

Should I count on Social Security for all my retirement income?

No. Social Security was never meant to be the sole source of income in retirement.  It is often said that a comfortable retirement is based on a "three-legged stool" of Social Security, pensions and savings. American workers should be saving for their retirement on a personal basis and through employer-sponsored or other retirement plans.

Does Social Security have dedicated assets invested for my retirement?

Social Security is largely a "pay-as-you-go" system with today's taxpayers paying for the benefits of today's retirees. Money not needed to pay today's benefits is invested in special-issue Treasury bonds.

Is there really a Social Security trust fund?

Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security.

I hear that Social Security has a big financial problem? Why?

Social Security's financing problems are long term and will not affect today's retirees and near-retirees for many years, but they are very large and serious. People are living longer, the first baby boomers are nearing retirement, and the birth rate is lower than in the past. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates.

What will happen if Social Security is not changed?

If Social Security is not changed, then by about 2041 payroll taxes will have to be increased, the benefits of today's younger workers will have to be cut, or some other source of revenue, like transfers from general revenues, will be required. Social Security's Trustees state, "If no action were taken until the combined trust funds become exhausted in 2041, then the effects of changes would be more concentrated on fewer years. For example, payroll taxes could be raised to finance scheduled benefits fully in every year starting in 2041. In this case, the payroll tax would be increased to 15.94 percent at the point of trust fund exhaustion in 2041 and continue rising to 16.60 percent in 2082. Similarly, benefits could be reduced to the level that is payable with scheduled tax rates in every year beginning in 2041. Under this scenario, benefits would be reduced 22 percent at the point of trust fund exhaustion in 2041, with reductions reaching 25 percent in 2082.” See the 2008 Trustees Report.

How big is the future problem?

Social Security is not sustainable  at currently scheduled levels over the long term with current tax rates without large infusions of additional revenue. There will be a growing shortfall once the trust fund reserves are exhausted in 2041.

Social Security's Chief Actuary projects that in present-value dollars the financial shortfall (or unfunded obligation) for the 75-year period is $4.3 trillion. This unfunded obligation is equal to 1.6 percent of the taxable earnings or 0.6 percent of the nation’s gross domestic product (GDP) over the next 75 years.

See the 2008 Trustees Report.

Addressing the problem now allows the burden of reform to be spread over more generations, and gives younger people more time to adjust their own retirement planning decisions.  As the Trustees of Social Security, the Comptroller General of the United States and the Chairman of the Federal Reserve Board have said, the sooner we address the problem, the smaller and less abrupt the changes will be. The independent, bipartisan Social Security Advisory Board has said: "As time goes by, the size of the Social Security problem grows, and the choices available to fix it become more limited." Addressing the problem now will allow today's younger workers planning for their retirement to have a better assurance of the future of Social Security. See the 2008 Trustees Report.

What are the alternatives for modernization and reform?

The four basic alternatives that are being discussed -- singular or in combination with each other – are (1) increasing payroll taxes, (2) decreasing benefits, (3) using other financing sources such as general revenues or (4) prefunding future benefits through either personal savings accounts or direct investments of the trust funds.

The independent, bipartisan Social Security Board examined many options that addressed Social Security’s long-range solvency problem.  Their September 2005 report is available online in pdf format.

Would a "lock box" fix Social Security's problems in and of itself?

No. As Social Security's Chief Actuary has stated, "The implementation of a Social Security 'lock box' would not alter the U.S. Treasury commitment and thus would have no direct effect on the future solvency of Social Security. However, if the effect of a 'lock box' were to require that the non-Social Security Federal budget be in balance or surplus for the years in which Social Security makes investments, then the amount of borrowing from the public might be reduced. In this case the difficulty of generating General Revenue for the redemption of Trust Fund investments in the future would likely be diminished."