	Social Security’s Long-Term Financing Problem Is More Urgent Than It May Appear

Today the Social Security program faces not an immediate crisis but rather  a long-range and more fundamental financing problem driven largely by  known demographic trends. Acting soon would  allow changes to be phased in so the individuals who are most likely to be  affected, namely younger and future workers, will have time to adjust their  retirement planning while helping to avoid related “expectation gaps.”  Since there is a great deal of confusion about Social Security’s current  financing arrangements and the nature of its long-term financing problem,  I would like to spend some time describing the nature, timing, and extent  of the financing problem. As a result, the relative numbers of workers and beneficiaries has  a major impact on the program’s financial condition. Decline in Budgetary Flexibility Disappears Absent Entitlement Reform

From the perspective of the federal budget and the economy, the  challenge posed by the growth in Social Security spending becomes even  more significant in combination with the more rapid expected growth in  Medicare and Medicaid spending. This testimony is not about the complexities of Medicare, but it is  important to note that Medicare presents a much greater, more complex,  and more urgent fiscal challenge than does Social Security. A fundamental review of what the federal  government does and how it does it will be needed. As a former public trustee of Social Security and  Medicare, I am well aware of the central role these programs play in the  lives of millions of Americans. Social Security is also much more than just  a retirement program; it also pays benefits to disabled workers and their  dependents, spouses and children of retired workers, and survivors of  deceased workers. While 75-year  actuarial balance is generally used in evaluating the long-term financial  outlook of the Social Security program and reform proposals, it is not  sufficient in gauging the program’s solvency after the 75th year. In addition, policymakers could consider the impact  of proposed changes on various subpopulations, such as low-income  workers, women, minorities, and people with disabilities. A number of Social Security reform proposals were introduced in the  107th Congress. Examining the Effects of Reform Using the Commission’s Proposals

Applying our criteria to the Commission models highlights trade-offs  between efforts to achieve sustainable solvency and maintain adequate  retirement income for current and future beneficiaries. Over the past few years, we have been developing a capacity to  estimate the quantitative effects of Social Security reform on individuals.
Why GAO Did This Study

Social Security not only represents the foundation of our retirement income system; it also provides millions of Americans with disability insurance and survivors' benefits. As a result, Social Security provides benefits that are critical to the current and future well-being of tens of millions of Americans. However, the system faces both solvency and sustainability challenges in the longer term. In their 2002 report, the Trustees emphasized that while the program's near-term financial condition has improved slightly, Social Security faces a substantial financial challenge in the not-too-distant future that needs to be addressed soon. In essence, the program's long-term outlook remains unchanged. Without reform, Social Security, Medicare, and Medicaid are unsustainable, and the long-term impact of these entitlement programs on the federal budget and the economy will be dramatic. Over the past few years, a wide array of proposals has been put forth to restore Social Security's long-term solvency, and a commission established by the President has presented three models for modifying the current program. The Commission's final report called for a period of discussion lasting at least a year before legislative action is taken to strengthen and restore sustainability to Social Security. We have also done a qualitative review of three other proposals introduced in the 107th Congress.

What GAO Found

Our Social Security challenge is more urgent than it may appear. Failure to take remedial action will, in combination with other entitlement spending, lead to a situation unsustainable both for the federal government and, ultimately, the economy. This problem is about more than finances. It is also about maintaining an adequate safety net for American workers against loss of income from retirement, disability, or death; Social Security provides a foundation of retirement income for millions of Americans and has prevented many former workers and their families from living their retirement years in poverty. As the Congress considers proposals to restore the long-term financial stability and viability of the Social Security system, it also needs to consider the impact of the potential changes on different types of beneficiaries. Moreover, while addressing Social Security reform is important and will not be easy, Medicare presents a much greater, more complex, and even more urgent fiscal challenge.