Mimi Lord, TIAA-CREF Institute
April 2005 |
Due to the aging of Baby Boomers, longer life expectancies and other demographic factors, the Social Security system is faced with serious funding challenges, particularly since the ratio of workers to retirees will decline significantly over the next 2-3 decades. Currently, the system operates at a surplus and is adding to the coffers of the Trust Funds. However, according to Social Security actuaries, annual revenues from payroll taxes in 2017 no longer will be sufficient to cover benefits and the Trust Funds will need to be tapped, allowing scheduled benefits to continue until 2041. After that, assuming no change in tax rates or benefits, the Trust Funds would be depleted and benefits would drop by about one-fourth. Three TIAA-CREF Institute Fellows, each an expert on Social Security, convened in March 2005 web conference to discuss options for closing the projected funding gaps. While all three agreed on certain points, such as the funding problem being “challenging, but not insurmountable,” there was a lack of agreement about the value of the President’s proposal for voluntary personal (or private) accounts.
This Policy Brief summarizes the March 2005 web conference, focusing on the significance of Social Security, the nature and extent of the funding problem, and options for reform. The impact of certain reform options on higher education is also addressed.