Social Security Turns 75: How Healthy Is It?

WASHINGTON (Aug. 12) -- Is Social Security showing its age?

When President Franklin D. Roosevelt signed "old-age" benefits into law on Aug. 14, 1935, nearly half of men and almost 40 percent of women died before they were old enough to cash in. The program later grew to include disability benefits and Medicare, which provides health care to the elderly. Today, with people living longer and baby boomers starting to collect their checks, many wonder if the Depression-era program is finally over the hill.

"Social Security at 75 is fairly arthritic," said Stuart Butler, head of domestic and economic policy at the conservative Heritage Foundation. "Over the long run, it's not going to be there for young people without taking some action. Whether it be weight training or something else, we've got to get it back into shape."

According to a report released last week by the trustees of the Social Security trust funds, the program's financial health "is little changed from last year," but the short-term prognosis "is worsened by a deeper recession than was projected."

For the first time since 1983, money being paid out by Social Security is expected to exceed tax receipts coming in. The report blamed the recession for a projected $41 billion deficit this year, though it predicted that would shrink as the economy rebounds and turn into small surpluses for 2012-14.

After that, "deficits are expected to grow rapidly as the baby boom generation's retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers," the report said. To fill the gap, the government would have to tap into the Social Security trust fund, which would be exhausted in 2037. At that point, the trustees said, payroll taxes would cover only about 75 percent of owed benefits through 2084.

"The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon," the report advised. "If action is taken sooner rather than later, more options will be available, and more time will be available to phase in changes so that those affected have adequate time to prepare."

American Enterprise Institute scholar Andrew Biggs, a former Social Security Administration official who oversaw research on the trade-offs involved in plugging the program's budget shortfalls, said the current recession shouldn't be used as an excuse to put off action. Changes passed now -- whether they are raising the retirement age, increasing taxes or cutting benefits -- won't kick in for years.

"Acting today wouldn't impose any costs immediately, but it would be a way of restoring confidence that we have some capacity to fix our fiscal problems," he said.

Eugene Steuerle, a senior fellow at the nonpartisan Urban Institute, said in a recent report that spiraling retirement payouts will be made worse by a worker-to-retiree ratio that is expected to drop to 2-to-1by the 2030s. Longer life expectancy and a move toward earlier retirement have increased the amount of money the government pays to seniors over a lifetime.

By his calculations, for people retiring today to receive the same number of years of benefits as a person who stopped working in 1940, when the average retirement age was 68, they would have to work until they are 75. By 2070, that would be 80.

"People are now retiring earlier than they did 50 years ago -- on average at about age 64, partly because of the decline in the earliest retirement age to 62 -- even as people live longer," he wrote.

The result, Steuerle said in an interview, is that Social Security "has morphed into a middle-age retirement system."

No Shortage of 'Reforms'

Since 1981, four separate reform commissions have laid out ideas to assure the program's fiscal integrity. Most of their ideas have collected dust. Which is not to say that one of the most popular federal government programs hasn't gotten plenty of attention from politicians.

Conservatives, never happy about government-run anything, have sought to change Social Security by adding personal retirement accounts. President George W. Bush tried to make that a centerpiece of his second term but was forced to drop it when Democrats refused to go along.

The idea hasn't died. Rep. Paul Ryan, a rising Republican star, has included individual retirement accounts within Social Security as part of his fiscal "Roadmap for America's Future." Despite his enthusiasm, though, it isn't clear that Republican leaders have the stomach to follow his lead before the fall election.

Democrats have pointed to GOP proposals as proof of nefarious intentions. Speaker of the House Nancy Pelosi sent out a celebratory anniversary e-mail today that accused congressional Republicans of "working to jeopardize the economic security of our seniors by pushing a risky plan to privatize Social Security."

The program has become a cudgel against GOP candidates in the midterm elections. In Nevada, Senate Majority Leader Harry Reid has made challenger Sharron Angle's views on Social Security a campaign issue. Democratic candidates everywhere are brandishing a "Republican tea party Contract on America" whose second agenda item, after repealing health care reform, is to "privatize Social Security or phase it out altogether."

If conservatives see a crisis and liberals downplay the problem's urgency, "the truth is somewhere in between," Biggs said. "The trust fund isn't real money, just I.O.U.s, but at the same time, the government will make good on those I.O.U.s."

In the meantime, Social Security is "on the table" at the bipartisan debt commission President Barack Obama appointed to find ways to rein in the federal deficit. Biggs expects it will be part of the group's report due in December.

"Nobody has a clue how to fix Medicare," he said, but "Social Security is fixable."