When Congress returns to Washington in January to begin its new session, I hope one of our top priorities will be to reform the Social Security program so that it will be there in the future. I think we have an historic opportunity to modernize this vital program while protecting the benefits seniors currently receive.
I have spent a lot of time over the past ten years working to expand private retirement savings. Legislation I have authored increases the amount you can contribute to a 401(k) plan or an IRA, and simplifies the rules for small business and individuals. In the next year, I am looking forward to building on that by working with the President and members from both parties to tackle the problems in Social Security, our critical public retirement plan.
Why is Social Security in need of reform? Mostly because it was designed in 1935 our nation's demographics have changed a lot. We have to remember that Social Security was established as a pay-as-you-go system, where workers pay a portion of their hard-earned wages to provide retirement benefits for those already retired (and also for survivors and families). This system worked well up until recently, because there were so many workers supporting each retiree.
In fact, when Social Security started there were 42 workers supporting each retiree. Today, it's a different story. The big baby boom generation is beginning to retire, people are living a lot longer and families are having fewer children. As a result, instead of 42 workers per retiree, only 3.3 workers support each retiree today, and by about 2030 only 2 workers will support each retiree. Without changes to the system, Social Security will go broke. It will be unable to bear the burden of these demographic challenges as fewer workers pay into the system to finance the benefits of retirees. And this begins to happen soon. The Social Security trustees say that in 14 years-by 2018 -- there will not be enough payroll taxes coming in to pay the promised benefits.
We've all heard about the huge Social Security deficit that is created by this increasing gap between payroll taxes and promised benefits. Consider this: in the year 2042 alone, the government would need $376 billion more in today's dollars to cover promised benefits. The overall unfounded liability in the Social Security system is now estimated at a staggering $10.4 trillion.
What is the right way to fix this problem? I do not believe that raising taxes or cutting benefits to the extent that would be necessary are the right answers. A better alternative that I have supported since my first election to Congress in 1993 is allowing workers to hold onto a small portion of their Social Security payroll taxes to build their own nest egg for retirement. These Social Security personal accounts help the individual because the rate of return is likely to be far higher than under traditional Social Security. But it also helps save the system over time. By saving money in personal accounts, that money builds up year after year, and a lot of pressure is taken off the Social Security system in the future.
Critical to this proposal is that the Social Security personal accounts would be voluntary and there would be no changes in benefits for current retirees and near-retirees.
When I meet with young people here in our area, I am often asked whether Social Security will be there for them when they retire. The truth is, the sooner we act to reform and strengthen Social Security, the sooner we can ensure that this essential program will be there for future generations.