Retirement Security for All Ameri

The Role of Social Security

American Academy of Actuaries Briefi

“Modernizing the U.S. Retirement Syst

Aligning Policy With Reality” 

Presented by Steve Goss, Chief Actuary

Social Security Administration

July 27, 2018
 Retirement and survivor benefits started in 19 Eligibility age was lowered from 65 to 62 in 

women and 1962 for men

– Full retirement age rises from 65 to 67 by 2022

 Disability benefits started in 1957 Benefits rise with average wage across gener

but with CPI after eligible

 Payroll taxes are roughly pay-as-you go

– Tax rate rose from 2% to 12.4% as the system ma– Minimal advance funding left investment in priva
 Over 95% of those over age 62 ar

eligible for benefits

 At the end of 2017, beneficiaries a

– 42 million retired workers– 9 million disabled workers– 4 million widow(er)s– 4 million children– 2 million spouses
Intent was a 3-legged stool

– Social Security—floor of protection– Employer-provided pension– Personal savings

Target 75-80% “replacement rate” in toSo how much has Social Security proviAnd how much will it provide in the fu

– First, consider benefit starting at age 65

The large majority start benefits by NR

(now 66+), because there is no earnings after NRA 

Missed opportunity to purchase a CPIindexed life annuity 

– By deferring start from age 66 to 70, the m

payment increases by 32%

– And this carries over to a surviving spouse 
What if start benefits earlier than age 6

(Medicare eligibility age), say at 62?

Monthly benefits starting at age 62 are 

– 20% lower than if you start at 65– 25% lower than if you start at 66

And the reduction is for life

But the trust fund reserves are projected 

become depleted in 2034

– If nothing is done, only 79% of scheduled 

will be payable in 2034

– And this drops to 74% by 2092– This is what can be provided with the curre

scheduled level of revenue for the program

OASDI Annual Cost and Non-Interest In

as a Percent of Taxable Payroll 
Rising Cost as a Percent of Payroll du

Changing Age Distribution (affects all 3 
Solutions: Get to Sustainable Solve

(or at least make progress)

 By 2034, reduce cost by about 25% or raise r

by about 33%

 Or some combination of these Lowering benefits and raising taxes will both 

additional pressure on the other two legs 

 Keep in mind, it is a PAYGO world, and acc

assets are only worth what others will pay
The Big Shift in Employer-Sponsored Pe

How Much Will Be in a Lifetime Annu
Some Ways to Lower Social Security Co

Have Been Considered 

https://www.ssa.gov/oact/solvency/provisions/index.html

 Lower benefits for retirees—not disabled?

– Increase normal retirement age (lowers OASDI cos

increases DI cost)

– Can exempt long-career low earners (Simpson Bow

 Lower benefits mainly for high earners?

– Reduce PIA above some level– Often combined with increasing PIA below some l

subject to work year requirements

 Lower benefits mainly for the oldest old?

– Reduce the COLA by using a chain-weighted versi– But some say increase it with the CPI-E (based on 

of consumers over age 62)
Some Ways to Increase Social Security Inc

Have Been Considered 

https://www.ssa.gov/oact/solvency/provisions/index.html

Raise the 12.4 percent OASDI payroll taRaise tax on highest earners?

– Increase taxable maximum amount– Some tax on all earnings above the maximu

Tax employer group health insurance pre

– Affects only middle class if taxable maximu

remains