Bloomberg reports today that the “air of crisis is striking, given that the program — far from being broke — can pay promised benefits for the next 25 years. After that, even without fixes such as higher payroll taxes or further increases in the retirement age, it could meet about three-quarters of its obligations through 2085, the latest report of the Social Security and Medicare Trustees shows.” See full story here:

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This is an exceptionally long post, but has a great analysis of the long term stability of the SOcial Security system.

From the Washington Post:amazon.com erhaps it’d be more useful to run through some of the numbers I find it helpful to keep in mind while writing about the issue:

1) Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. Source (PDF).

2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That “replacement rate” is scheduled to fall to 31 percent in the coming decades. Source.

3) Social Security’s replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.

4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.

5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.

6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.

7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.

In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it’s around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

The conclusions I draw from these numbers are:

1) Social Security’s 75-year shortfall is manageable. In fact, it’d be almost completely erased by applying the payroll tax to income over $106,000. Source (PDF).

2) Most opinion elites — Simpson being one good example, and the U.S. Senate being another — show a very strong preference for working as long as possible. Most Americans show a very strong preference for retiring as early as possible. Elites who enjoy their jobs need to be very careful about generalizing their experience to people who don’t enjoy their jobs. More bluntly: Raising the retirement age is the worst of all possible options for reforming Social Security. It’s not only regressive, but it also falls most heavily on those with the worst jobs. Means-testing would be much better.

3) Social Security is fairly stingy and getting stingier. We also know most 401(k)s are underfunded, and the same goes for many defined-benefit pension systems, both public and private. We need to be very careful not to “solve” the Social Security problem by worsening a broad retirement-security problem, and that requires approaching Social Security as part of our retirement-security infrastructure rather than simply as a budgetary question. Here are some ideas on how to do that.

By Ezra Klein | 05:23 PM ET, 05/10/2011 See page here:

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The Huffington Post ran an article today with Mark Miller’s reality check on the rhetoric about Social Security going broke: “… Social Security also has that big surplus, which has been accumulating since the last “fix” to the program was implemented during the Reagan years. That fix included a gradual boost of the retirement age from 65 to 67, and a substantial boost in payroll taxes that fund Social Security. Those changes were intended to raise a substantial cushion for the future retirement of all those boomers. It worked, and the money sits in something called the Social Security Trust Fund.

“True, as boomers start to retire in greater numbers, there won’t be enough current workers coming along behind them to keep the program solvent on a pay-go basis. That means the surplus funds will be drained — eventually. As in … 2037. But even then, income coming into the fund would cover about 75 percent of benefit payouts.”
See article here:

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THe Associated Press reports that big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that’s happened since the 1980s.

The deficits — $10 billion in 2010 and $9 billion in 2011 — won’t affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn’t expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security. See article detail here:

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Us News and World Reports joins a host of papers today reporting “impending” doom for the Social Security Trust Fund. Of curse, the economy has taken its toll, but all in all we are OK for three decades out - then the dreaded out-of-funds date has only been moved up two years.

US News says: “The annual hair shirt report of Social Security trustees was released on Tuesday. To no one’s surprise, our national retirement and health benefit programs are headed for perdition even more quickly than they were last year. Due to the recession, the effective bankruptcy date is 2037 for what’s technically called the Old-Age and Survivors, and Disability Insurance (OASDI) Trust Funds. That’s four years earlier than the forecast in last year’s report — no mean feat in only one year. Program expenses exceed revenues beginning in 2016 — that’s only seven years away, folks — and all assets are exhausted 21 years later.

And this, sadly, was the good news.

As the trustees said, “Medicare’s financial status is much worse.” It’s hospital insurance component (HI) already pays out more than it takes in, and is busily eating away at its assets as we speak. That tasty meal will be done in only eight years, at which time HI reserves will be zero,nada, zilch. The Medicare Supplementary Medical Insurance (SMI ) Trust Fund operates closer to break even, which is good, because it doesn’t have much in the way of assets. The bad news is that the only way it comes close to breaking even is by levying annual increases in rates that are growing faster than the economy and the incomes of the people who rely on the fund to pay for their doctors and prescription drugs.” See article here:

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