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Q: Why is Social Security so Important?

A: Social Security is important because of what it means to the financial well-being of this country.

• Forty-four million Americans get Social Security checks each month.
• Without Social Security over 50 percent of the elderly would live in poverty. With Social Security less than 11 percent do.
• Social Security is the major source of income for 66 percent of all beneficiaries and the only source of income for 18 percent of all beneficiaries.
• It is much more than a retirement program, providing survivors benefits and disability insurance protection. One in three beneficiaries are not retirees.

Q: Can I count on Social Security? Will it be there when I need it?

A: Yes, it will be. The important question is: What kind of Social Security program will be there?

• As it always has, Social Security will change to meet the needs of future generations.
• President Clinton is asking Americans to participate in a national dialogue this year about how we can best ensure the future solvency of Social Security.
• But to do so, people must understand the way the current program works.

Q: How long until Social Security goes broke?

A: Social Security is basically financed on a pay-as-you go basis. But for more than a decade, we have been accumulating large reserve funds to help pay for the retirement of baby-boomers.

• Today, there is more than $650 billion in treasury bonds in the trust funds, and by 2010, there will be more than $2.2 trillion.
• By 2013, payroll tax revenues alone will not be sufficient to pay all Social Security benefits. The program will need to use annual interest income from the trust funds to make benefit payments.
• By 2021, expenditures will exceed total annual income and the program will need to use trust fund assets to make benefit payments.
• If no reforms are enacted by 2032 (an unlikely assumption,) the trust funds would be depleted and payroll tax revenues would be sufficient to cover about three quarters of benefits due.

Q: Does that mean huge tax increases or benefit cuts would be needed to help keep Social Security solvent?

A: No. There are many ways to resolve the long-range financial problem.

• If reforms are made sooner, there are more options available. The reforms can be implemented gradually, and people will have more time to adapt to the changes.

Q: What has happened to the money in Social Security's trust fund reserves? Has it been used to finance other government programs?

A: By law, Social Security money is invested in Treasury bonds.

• Social Security, in effect, loans money to the government, as does any other investor who buys treasury securities.
• And the government has always repaid Social Security, with interest.
• People who hold treasury securities in their portfolios generally consider them to be among the safest of their investments.
• It is true, however, that beginning in 2013, when Social Security benefit payments will begin to exceed tax revenue, that the U.S. Treasury will have to begin paying back the Social Security system in order for Social Security to meet benefit obligations.
• However, government projections show that these bonds can be paid back without raising taxes through 2032.

Q. Couldn't most workers do better if they could take their Social Security taxes and invest them privately?

A: Some workers probably could--if they invested wisely and systematically and if they didn't lose their jobs or leave the workforce at any point.

• However, they would lose valuable disability and survivors protection offered under the Social Security program.
• In addition, the transition costs could be substantial to convert to a system of private accounts.
• Cost-of-living protection, an important feature of Social Security, would not be available with private accounts.
• Benefits received from Social Security are based on past earnings. In effect, the higher the income, the higher the benefits will be.
• Disability and survivors coverage, potentially worth hundreds of thousands of dollars, in addition to retirement benefits, are also included as part of Social Security.
• Anyone can get a Personal Earnings and Benefit Estimate Statement to find out what their benefits will be.

Q: Isn't part of the problem the fact that people who never worked or paid taxes get Social Security?

A: You have to work and pay taxes for a predetermined period of time before you are eligible for benefits.

• Some people who are not insured receive dependents and survivors benefits, but they are eligible for those payments on the account of someone who has worked and paid Social Security taxes.
• Many people confuse Supplemental Security Income (SSI) with Social Security.
• SSI pays benefits to low-income disabled and elderly.
• Individuals who apply for SSI must go through a "means test." In other words, each person must meet certain income, resource and assets limits.
• SSI is administered by SSA, but it is funded from general tax revenues, not Social Security taxes.

Q: Don't most experts agree that Social Security should be privatized?

A: No. There is agreement that Social Security should be reformed....but not necessarily privatized. In fact, some experts support privatization and others take exception.

• Privatization is a term that can mean different things to different people.
• For example, for some, the privatization of Social Security means simply collectively investing the trust fund reserves in equities instead of government securities. But for others, the privatization of Social Security means creating individual accounts either as a supplement to, or a replacement for, Social Security benefits.
• And, in order to pay promised benefits to current and near-term retirees, there could be substantial transition costs associated with some proposals for privatization of Social Security.
• Another consideration in any privatization scenario is the costs associated with administering the program. The administrative costs for Social Security are less than 1 percent of current expenses. The administrative costs associated with any privatization plan could be much higher.

Q: What is likely to happen? How will Social Security be changed?

A: Social Security reform involves tough choices. Each choice involves difficult tradeoffs.

• President Clinton will convene a White House conference on Social Security at the end of the year, and in early 1999, there will bea bipartisan effort to reform Social Security.
• The President wants Americans to be involved in this process, and has called for a year-long discussion of the issue.
• As SSA employees, you can help facilitate this national dialogue. And you can help ensure that people understand how the current Social Security program works and that they understand the important issues about Social Security reform.
  

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