The Social Security Administration itself is sending warning signs to Congress to fix what ails the system now.
The Social Security Administration’s Chief Actuary is sounding warning signs to lawmakers to fix Social Security or benefits could be at risk. Stephen Goss says benefits could be cut by 25 percent by 2033 if Congress doesn’t act to shore up the Social Security Trust Fund. More immediately, the trust fund for disability insurance benefits would be depleted by 2016 unless money is shifted to the fund, Goss told a Senate Finance subcommittee.
Goss says it’s vital to have a secure Social Security system because most companies have turned to 401(k) plans over pensions and that many employees aren’t enrolling in them. Many of the plans are offering lump sum distributions, he says.
“This trend has left Social Security as the sole source of lifetime retirement income for most Americans, and in general the only source that is adjusted for price increases after retirement,” Goss said in his testimony. “Retirees are increasingly at risk for having no income other than Social Security benefits at older ages.”
Goss says the average Social Security retired worker benefit in 2013 was $1,270 per month, or about $15,240 if received for a full year. Average earnings for workers in the US were about $44,000 in 2013. Thus, benefits represented about 35 percent of the level of average earnings, he says.
Social Security benefits are based only on earnings subject to the payroll tax, which was a little over 82 percent of total earnings for covered workers in 2013, Goss says. In effect, the average retired worker benefit is about 42 percent of the average taxable earnings of workers in 2013. About half start taking benefits at 62, he says.
“This is well below the target level that workers generally want in retirement, again suggesting the importance of other sources of retirement income,” Goss says.
Besides cutting benefits by 25 percent, the other option to fix the trust fund is to raise revenue by 33 percent or a combination of the two, Goss says.
“Social Security benefits continue to be the primary floor of protection for Americans in retirement, for those disabled and for the surviving family members of workers when they die,” Goss says. “ Because of the reduced birth rates after 1965, the US is entering a period of dramatic ‘macro aging’ that has already affected the cost of the DI program over the past 20 years.”
Richard Fiesta, executive director of the Alliance for Retired Americans told Complete Senior he expects Congress will relocate money within the trust fund to take care of disability benefits without damaging the overall program with a $2.7 billion surplus. Fiesta and other senior groups have fought the suggestion to raise the retirement age from the existing 66/67 mark because it would be viewed as a cut in benefits, especially for the poor who need Social Security and don’t live as long as those who are wealthier, he says.
The groups are opposed by one proposal from the conservative Heritage Foundation to eliminate the spousal benefit. The benefit is given to the surviving spouse and their children under 18. If someone dies long before they’re eligible for Social Security, benefits are still paid.
“That would be a terrible thing,” Fiesta said. “The spousal benefit is there when somebody dies during their working life often time since the prime of their life. It’s important to keep a family together and literally keep a roof over somebody’s head and take care of the daily needs of their life. It would be socially unconscionable to do away with that. It’s been one of the great features of the Social Security program in our view.”