	Social Security’s Long-term Financing Problem Is More Urgent than It May Appear

Today, the Social Security program does not face an immediate crisis, but  it does face a long-range financing problem driven primarily by known  demographic trends that is growing rapidly. Acting soon to  address these problems reduces the likelihood that the Congress will have  to choose between imposing severe benefit cuts and unfairly burdening  future generations with the program’s rising costs. To the extent that people choose to work longer as they live  longer, the increase in the amount of time spent in retirement could be  diminished. Some of  the benefits of early action—and the costs of delay—can be seen in figure  4. If we did nothing until  2042—the year SSA estimates the Trust Funds will be exhausted— achieving actuarial balance would require changes in benefits of 30  percent or changes in taxes of 43 percent. If you look ahead in the federal budget, the Social Security programs (Old- Age and Survivors Insurance and Disability Insurance), together with the  rapidly growing health programs (Medicare and Medicaid), will dominate  the federal government’s future fiscal outlook. Absent reform, the nation  will ultimately have to choose among persistent, escalating federal deficits  and debt, huge tax increases and/or dramatic budget cuts. GAO’s long-term  budget simulations show that to move into the future with no changes in  federal retirement and health programs is to envision a very different role  for the federal government. Social Security remains the foundation of  the nation’s retirement system. It is also much more than just a retirement  program; it pays benefits to disabled workers and their dependents,  spouses and children of retired workers, and survivors of deceased  workers. Thus, GAO has developed a  broad framework for evaluating reform proposals that considers not only  solvency but other aspects of the program as well. Reform plans that lead to  sustainable solvency would be those that consider the broader issues  of fiscal sustainability and affordability over the long term. The  current Social Security system’s benefit structure attempts to strike a  balance between the goals of retirement income adequacy and  individual equity. Social Security Reform Should Be Considered in the Context of Broader Challenges

Another important consideration for Social Security reform is assessing a  proposal’s effect on national saving. Finally, the effort to reform Social Security is occurring as our nation’s  private pension system is also facing serious challenges. In addition, our Social Security challenge  is only part of a much broader challenge that includes, among other things,  the need to reform Medicare, Medicaid and our overall health care system. We at GAO look forward to continuing to work with this Committee and  the Congress in addressing this and other important issues facing our  nation.
Why GAO Did This Study

Social Security is the foundation of the nation's retirement income system, helping to protect the vast majority of American workers and their families from poverty in old age. However, it is much more than a retirement program and also provides millions of Americans with disability insurance and survivors' benefits. Over the long term, as the baby boom generation retires and as Americans continue to live longer and have fewer children, Social Security's financing shortfall presents a major program solvency and sustainability challenge that is growing as time passes. The Chairman and Ranking Member of the Senate Special Committee on Aging asked GAO to discuss the future of the Social Security program. This testimony will address the nature of Social Security's long-term financing problem and why it is preferable for Congress to take action sooner rather than later, as well as the broader context in which reform proposals should be considered.

What GAO Found

Although the Social Security system in not in crisis today, it faces serious and growing solvency and sustainability challenges. Furthermore, Social Security's problems are a subset of our nation's overall fiscal challenge. Absent reform, the nation will ultimately have to choose among escalating federal deficits and debt, huge tax increases and/or dramatic budget cuts. GAO's long-term budget simulations show that to move into the future with no changes in federal retirement and health programs is to envision a very different role for the federal government. With regard to Social Security, if we did nothing until 2042, achieving actuarial balance would require a reduction in benefits of 30 percent or an increase in payroll taxes of 43 percent. In contrast, taking action soon will serve to reduce the amount of change needed to ensure that Social Security is solvent, sustainable, and secure for current and future generations. Acting sooner will also serve to improve the federal government's credibility with the markets and the confidence of the American people in the government's ability to address long-range challenges before they reach crisis proportions. However, financial stability should not be the only consideration when evaluating reform proposals. Other important objectives, such as balancing the adequacy and equity of the benefits structure need to be considered. Furthermore, any changes to Social Security should be considered in the context of the broader challenges facing our nation, such as the changing nature of the private pension system, escalating health care costs, and the need to reform Medicare and Medicaid.