Actuarial Status and Future Prospects for Social Security Discussion with Drake University and Iowa Actuaries Club Stephen C. Goss, Chief Actuary Social Security Administration March 26, 2012

2 Social Security Financial Situation and Options 1)Social Security’s Role in Retirement Income 2)The Financial Outlook for Social Security 3)Why the Rise in Cost over the Next 20 Years? 4)Options for Getting OASDI in Long-Range Balance 5)Doing It Better This Time

3 1) Social Security’s Role in Retirement Income Only one of the three legs of the stool But is the only leg for about one third of retirees And is more than half for about two thirds Defined Benefit, Life annuity, CPI indexed Efficiency??? Over 99 percent “loss ratio” What level of retirement income does it provide?

4 1) Social Security’s Role in Retirement Income

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7 2) The Financial Outlook for Social Security

8 2) The Financial Outlook for Social Security Combined OASDI Reserves Exhaust by 2036; DI Sooner

9 2) The Financial Outlook for Social Security Projected Cost, Income, and Expenditures as Percent of Taxable Earnings

10 3) Why the Rise in Cost Over the Next 20 Years?

11 3) Why the Rise in Cost Over the Next 20 Years? 3.3 workers per beneficiary since 1975; only 2 by WHY?

12 3) Why the Rise in Cost Over the Next 20 Years? Not mortality improvement after something else

13 3) Why the Rise in Cost Over the Next 20 Years? Shift in Birth Rate from almost 3 per Woman to Just 2 Since 1975

14 4) Options for Getting OASDI in Long-Range Balance Ultimately—reduce benefits 25%, increase income 33%, or some combination!! It’s All About Demographics… Average retiree benefit is about $1,000/month 3.3 workers have been sharing cost of $300 each But paid 13.6% over cost , $341 each When 2 workers pay same $341 each, then average retiree apparently gets $682 per month, or 32% less. But shortfall after 2040 is 25%, NOT 32%, because 1) NRA increases again under PL 2) Revenue from tax on benefits is rising 3) Average benefit rises slower than average earnings with increasing longevity---more COLAs put benefits further below the general standard of living of current workers

15 4) Options for Getting OASDI in Long-Range Balance Recent Commissions and Congressional Proposals Raise Payroll tax at the top---increase the $110,100 taxable maximum Raise Revenue on the middle---make employer-sponsored group health premiums taxable Reduce benefits for retirees and not disabled---increase normal retirement age Exceptions for long career low earners? Reduce benefits for all, or most---reduce the benefit formula factors Can make reductions only, or mainly for higher average earners Lower benefits mainly for the oldest old---reduce the COLA Ultimately our elected representatives will decide What benefits---at what cost for complete list of options and plans:

16 5) Doing It Better This Time Congress has always acted in time---but we can do better

17 5) Doing It Better This Time The 1983 Amendments extended Trust Fund Solvency But scheduled benefits were not sustainable with the scheduled taxes Sustainable Solvency---The Solution Requires solvency through 75 years---AND Reserves stable as percent of Program Cost in 75 th year Developed in in response to 1983 Amendments Advisory Council, and Bob Kerry and Alan Simpson This Challenge has been addressed by virtually every proposal since 1995

18 5) Doing It Better This Time —encourage delayed benefits

19 Best Use of Personal Savings and DC Accumulation?