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Social Security: Do We Have to Act Now?

Testimony Before The Senate Special Committee On Aging

Widow(er) of retired worker $920 Disabled Worker $895

Fairness

In an increasingly diverse nation where opportunities in the labor market have not been equally distributed in the past, another duty of those who would change the system is to promote fairness. African-American and Hispanic workers make up a disproportionate segment of the nation's low and moderate wage earners. At present, the Social Security benefit formula ensures some fairness in that all lower-wage workers receive a higher percentage replacement of salary in retirement relative to their lifetime earnings.

Life-expectancy at birth is still significantly lower for males of these groups. The lower life-expectancy has sometimes been used to show lower-wage earners potentially contribute more than they receive in benefits. However, life expectancy at 65 differs by only about a year, and the gap is closing. A further balancing factor, in terms of distribution of funds, is that a higher percentage of low-wage workers draw disability benefits and a higher percentage of their families draw survivor benefits.

Women's equity issues. Women, too, are concentrated in low-wage work on average. Their median salary is $531 a week compared to $685 a week for men. In other words, women are paid about 78% of what men are paid, a figure which unfortunately tends to stand over a lifetime. For one of every four unmarried women over 75, the only source of income is their Social Security check. Since women tend to live longer, a Cost of Living Adjustment (COLA) calculated on the Consumer Price Index annually is crucial to keep these women from falling into poverty as they age. Women (and men) who have been married to other workers get the higher of either benefits accruing (as spouses) from their partner's work record or their own work earnings, but not both.

Poor & Near Poor, 2001 (within 150% of Poverty)
Age Men Women
60-64 16% 20%
65-74 17% 24%
75+ 20% 33%

Solvency

Solvency is a major focus of the current reform discussion. According to the Social Security trustees, the system is out of long range balance by about 1.89% of payroll. Projections by the Congressional Budget Office show a smaller long-term deficit of only 1.00% of payroll over 75 years.

Because the Social Security system pays retirees, widows, orphans, and the disabled and their families each year out of the funds collected from current workers' payroll checks and some of the income taxes paid on benefits, it is sometimes referred to as a pay-as-you-go system. Demographic changes including slower workforce growth and longer lives affect the projected annual Social Security balance sheet. Recognizing well in advance the population bulge created when births were delayed by World War II (the phenomenon known as the baby boom), excess collections were legislated in the early '80s to create a surplus in the Social Security trust fund designed to meet the nation's obligations to boomers' retirement. For years, Social Security's income has exceeded its pay out, and the trust fund has grown.

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