A federal study panel issued a health report this week on the Social Security system, confirming what other experts have said for years: Social Security will remain in good financial health for the next decade or two but then face serious problems.
In short, there will be too many baby boomers in retirement by about 2029 and not enough younger workers to pay the pensions the baby boomers now expect.
Members of the panel offered three plans for Social Security to increase its revenues, and all three called for investing some of the system's funds in the stock market. But there were major differences of opinion about how those investments should be made -- alternatives likely to be debated by Congress and the White House for years to come.
For the immediate future the system will remain unchanged and the keystone of the government safety net, as explained by Sun staff writer John B. O'Donnell.
What is Social Security?
It is a government-operated pension system, created in 1935 in the midst of the Great Depression by President Franklin D. Roosevelt as part of the New Deal. His innovation was to promise elderly Americans financial support through a government program.
Who is eligible for a Social Security retirement check?
In general, anyone who has worked and contributed a minimal amount to the Social Security system through payroll tax deductions for at least 10 years is eligible for a Social Security pension. You become eligible for a full pension at age 65 -- but that threshold is going to be gradually raised to 67 between 2003 and 2027. You can collect a reduced pension beginning at age 62.
How much do I have to pay into the system?
Every employed worker pays 6.2 percent of the first $65,400 in annual wages into the Social Security trust fund. The employer pays an identical amount.
How many people pay Social Security taxes?
About 141 million Americans pay about $360 billion annually. More than 43 million people receive checks each month. Of those, 26 million are retired workers. Others who receive benefits are dependents and spouses of retired workers, disabled workers and their dependents and spouses, and widows and minor children of insured workers who died before retirement. For the disabled and survivors, eligibility requirements are different.
What is SSI?
Supplemental Security Insurance is separate from Social Security, though it's run by the Social Security Administration. SSI is a welfare program for poor Americans who are elderly or disabled and not eligible for Social Security benefits. It is financed by general government revenues, not by Social Security taxes.
Let's say I'm employed and paying Social Security taxes. How much will I get in my Social Security check when I retire?
That depends on the amount of money you paid into the system and the number of years you worked. Now the average monthly pension check is $740, and the maximum for someone who retires at 65 is $1,326. If you retire past age 65, your check will be higher. Those figures change each year. Meanwhile, you can get an estimate of your eventual pension by calling the Social Security Administration at 1-800-772-1213 or asking for it on the Internet at the agency's home page. That address is www.ssa.gov.
Can I collect more through pension checks than I contributed through taxes?
Yes. While you must "earn" the right to a Social Security pension, your payments are not limited to the amount you contributed plus interest. A famous case involved Ida May Fuller, who received the first monthly retirement check -- $22.54 -- ever issued by Social Security. That happened in 1940 after she had paid about $25 into the system. She lived to be 100 and received more than $20,000 in Social Security retirement checks before her death in 1975.
Are my contributions set aside in a separate account for me?
No. All the money goes, in effect, into a single trust fund. Your taxes are covering the pension checks going to people who are already retired. When you retire, people still working will be financing your Social Security checks.
Is there a surplus in the trust fund?
For now, yes. Income exceeds expenses by about $60 billion a year. The excess is used to finance everyday government operations, from buying missiles to paying agriculture subsidies. Technically, the U.S. Treasury borrows the money from the Social Security Administration and issues interest-bearing bonds, just as it issues bonds to private citizens who lend it money.
These bonds constitute the system's surplus, which is $500 billion and is expected to grow to $3 trillion over the next 16 years.
Why is there talk of "saving" Social Security? What's the problem?
Baby boomers are the problem.
That huge generation of Americans -- 76 million -- born between 1946 and 1964 will begin to retire in 15 years. Because population growth rates fell off after the baby boom generation, there won't be as many workers to support each retiree when the boomers head out to pasture.