Ways and Means Social Security Chairman Earl Pomeroy (D-ND) today released the results of a study from the Chief Actuary of Social Security analyzing several proposals, including those advanced by Republican Congressional leaders, as ways to reduce the long-term cost of Social Security. The analysis reveals that, contrary to the assertions by their proponents, these proposals would have a profoundly negative impact on the retirement security of middle-class seniors in addition to high-income retirees.
"There's been a lot of discussion about how easy it would be to cut Social Security in order to save it," said Chairman Pomeroy. "I asked the experts to analyze the proposals being made because I felt that much of this discussion lacked substantive information. The truth is that none of the cuts being proposed are easy on anyone and in fact, all of them will hurt middle class seniors and their retirement security. I don't think the average American worker could afford to lose 30 percent of their Social Security, which is what would happen under the Republican proposal. That's not what I'd call "saving' Social Security."
The Office of the Chief Actuary analyzed several proposals - including those by Budget Committee Ranking Member, Rep. Paul Ryan (R-WI), and Minority Leader John Boehner (R-OH) - that claim to make "modest" changes affecting higher-income seniors in order to "save" Social Security.
"The new analysis reveals that these proposals result in benefits cuts ranging from ten percent to as high as 50 percent," continued Pomeroy. "As I talk to seniors today about stretching their Social Security benefits with no cost of living adjustment in sight, they would not agree with describing cuts of this magnitude as "modest'."
Today average Social Security benefits are $14,000 a year for retirees. Six in ten seniors rely on these modest Social Security benefits to provide the majority of their income, and one-third of seniors have little other than Social Security to live on.
Proposals analyzed by the Chief Actuary include:
* raising the retirement age from 67, as scheduled under current law, to a higher level-this reduces benefits for all regardless of when they retire;
* flattening benefit levels and reducing replacement rates by tying initial benefit levels to price levels rather than wage levels (sometimes referred to as "partial price indexing" or "progressive price indexing");
* adopting an alternative measure of inflation as the basis for the annual cost-of-living adjustment (COLA).
The attached charts outline the impact of these proposals.
Chart 1 is a baseline, showing benefit levels under current law for individuals retiring in 2010.
Chart 2 shows the size of the benefit cuts under "price-indexing" as proposed in the Ryan plan -- H.R. 4529, the Roadmap for America's Future. The chart displays the size of the cuts for workers with various earnings levels, and for different generations. It shows that the cuts affect the middle class and become increasingly deep for future generations.
Chart 3 shows how proposals to raise the retirement age cause a reduction in benefits regardless of what age the individual retires. The chart shows benefit levels for individuals retiring at ages 62, 65, 67 and 70. It compares current law, indexing the retirement age to longevity (similar to the Ryan plan), and raising the retirement age to 70 by 2040.
Chart 4 illustrates the effect of changing the COLA by switching to an alternative measure of economy-wide price inflation. The oldest beneficiaries are the ones most affected.
Social Security Benefits are Modest Yet Vital
Social Security provides the majority of income during retirement for six in ten American seniors. For some seniors, Social Security is almost their only source of income: for one in two elderly unmarried women and widows, and for one-third of retirees, Social Security provides 90 percent or more of their monthly income. Yet, benefits are modest. The average senior receives only about $14,000 a year from Social Security. Since the median income for seniors is only $24,000 a year, it is clear that Social Security's guaranteed income, fully protected from inflation and market fluctuations, is vitally important. No other retirement income program can match the security that Social Security provides.
Social Security is Affordable and Sustainable
Social Security is a self-financing program, as payroll contributions from American workers and their employers and other revenue are dedicated solely to the program and can only be used for benefits and administrative costs. Any amounts not needed immediately for benefits are invested through the Social Security Trust Funds in special Treasury bonds that pay market rates of interest, but are redeemable at face value if needed before maturity, and which are backed by the full faith and credit of the United States.
Since 1983, the Trust Funds have grown and today contain assets worth $2.6 trillion. These are projected to grow to over $4 trillion before being drawn down, as intended, to help finance the costs of the baby boom generation's retirement. Although the portion of the population that is age 65 or older is rising as the baby boomers enter retirement, the Social Security actuaries project that the total cost of Social Security will increase by only 1.3 percentage points of Gross Domestic Product (GDP) -- or the total economic output of the nation -- until about 2035, and will remain relatively stable thereafter at about six percent of GDP.
The reserves in the Social Security Trust Funds are projected to be exhausted in 2037. After that point, payroll contributions alone will be able to provide for about 78 percent of scheduled benefits to seniors and other beneficiaries. A cut in benefits after 2037 can be avoided if steps are taken by Congress before that time to improve the financial status of the program over the long-term.