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Choosing the Nation’s Fiscal Future
It is more than a generation since the major program and financing reforms of 1983, and many of those who were age 45 then are now retired or planning to retire. Americans are now living longer in retirement. A generally declining birthrate and changing work patterns have changed the actual and projected ratios of numbers working and paying into the program’s trust fund to those retired and collecting benefits. Within a generation, as the baby boomers retire, the number of people over the age of 65 will rise from about 13 percent of the population (in 2007) to about 20 percent (in 2040) (Census Bureau, 2009). On average, people will spend many more years in retirement—and drawing Social Security benefits—than previous generations.14 Consequently, the ratio of workers covered by Social Security to program beneficiaries is projected to decrease from its current level of 3.2 to 2.1 in 2035. Thereafter, this ratio is projected to continue to decline, but much more slowly, reaching 1.9 in 2085 (Social Security Administration, 2009d).
Social Security benefits now total 4.8 percent of GDP and they are projected to reach 6.2 percent by 2035. Over the same period, under current law (i.e., without any changes), Social Security revenues will decline from their present level of 5.8 percent to about 4.8 percent of GDP, resulting in a gap of 1.4 percent of GDP. On the basis of such straightforward projections by the Social Security actuaries and others, it is widely agreed that financial reforms are required soon to ensure that the program’s implicit promise is kept for the current generation of workers, as well as with future generations.
What will soon become a growing discrepancy between Social Security’s benefits and revenues will exhaust the trust fund and so threaten the program’s solvency as well as the payment of currently scheduled benefits; see Figures 6-3 and 6-4.15Box 6-1 sketches how the projected depletion of the Social Security trust fund relates to other indicators of the program’s long-term financial prospects (see Social Security Administration 2009d; see also Appendix C). The program’s financial outlook presents a looming problem not just for Social Security, however; given the program’s size and pending cash flow deficits that must be somehow financed by the U.S. Treasury, it is a problem for the U.S. budget as a whole.
OPTIONS TO RESTORE SOLVENCY
The fiscal future of the Social Security program could be assured in various ways, but virtually all experts agree that reform likely will require