reform options all draw on the intermediate assumptions of the 2009 Social Security Trustees’ Report (Social Security Administration, 2009d). For the long term, the less detailed projections of the Congressional Budget Office (2009f) take a generally similar path, although its projections of the gap between spending and revenue are somewhat smaller and, as a result, it projects the exhaustion of the trust fund slightly later. For consistency with the rest of the study, the baseline for the overall budget and the analysis of our paths use the Congressional Budget Office projections for Social Security.

  

6. Only the briefest history of the program’s finances is presented here: for more detailed histories, see, among others, Aaron and Reischauer (1998) and Diamond and Orszag (2005).

  

7. For details on these program changes, see Aaron and Reischauer (2009) and Diamond and Orszag (2005).

  

8. Those who start receiving Social Security retirement benefits at an earlier age—62 is the earliest allowable—have their benefits reduced by about 8 percent a year, and those who delay retirement beyond the age at which they can receive full benefits gain about 8 percent in benefits for each year—up to age 70—they delay retirement. These adjustments were intended to equalize lifetime benefits for those who retire at different ages, based on average life expectancies.

  

9. Considering the Social Security program as a whole, the program is like private insurance in that it insures against adverse events (such as the risk of an impoverished retirement), yet it is part of a social contract that includes almost all workers and their families.

  

10. Except for Figure 6-2, this report shows Social Security replacement rates for individual earnings for individual workers—not for families—and does not include other sources of income in retirement. These replacement rates are percentages of individuals’ earnings creditable to Social Security. (Illustrations of earning levels are in 2009 dollars.) This definition is widely used, not just currently by the Social Security Administration, but by others (see, e.g., Congressional Budget Office, 2001:20-21). However, it differs markedly from that used in retirement planning; see Appendix C.

  

11. Noncash income, such as Food Stamps or housing subsidies, are excluded, as are lump-sum pension payments and income from capital gains, such as from the sale of a house or stock. Periodic pension payments are included in the total, however. The quintile “break points” in the distribution of total money income are $11,519, $18,622, $28,911, and $50,064 per year. Percentages graphed are the mean proportion of benefits as a share of all income, within each quintile. Although the total is shown, elderly individuals tend to be more dependent on Social Security benefits than couples.

  

12. Some analysts argue that the availability of Social Security and Medicare acts to reduce voluntary savings, however.

  

13. “Remain relatively constant” refers to the illustrations of workers at different positions in the lifetime distribution of earnings covered by Social Security. Individual workers who retire at a given age (such as 65) in the future will generally have somewhat lower earnings replacement rates. These lower replacement rates will occur because, under current law, the retirement age for full benefits, which once was 65, will rise in 2-month increments to reach 67 after 2022.

  

14. For example, the life expectancy for those turning 65 in 1990 was 15.8 years for men and 19.1 years for women; currently, it is 17.7 years for men and 20.0 years for women; and it is projected to be 20.9 years for men and 23.1 years for women in 2060. In other words, increased longevity means about one-third longer retirement for men and one-fifth longer for women in 2060 in comparison with 1990 (Social Security Administration, 2009d).

  

15. The “present values” shown in Figure 6-4 use projected interest rates to discount streams of future revenue and spending to a single dollar figure, in this case for January 1, 2009.



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