People are living a lot longer than they used to, and according to Richard Burkhauser?an authority on Social Security and retirement?that trend may create problems in the near future.
Chairman of the Department of Policy Analysis and Management at Cornell University, Burkhauser spoke on Social Security policy options Thursday in the Marriott Library.
Social Security provides affordable, inflation-resistant insurance. For retirement, disability and survivors of dead family members, the plan guarantees an amount of money each month.
From its initiation in 1935 until 1990, Social Security has been very popular. “[It’s] done the job,” Burkhauser said. About 92 percent of the nation is covered by the plan, excluding some state governments and religious groups that are exempt from it.
The plan, however, has become much more controversial now, Burkhauser said.
Money going into the system is not placed in a “lockbox” and kept safe until retirement, as some may believe. As money comes in, it is placed into benefits for others.
Before, the employment rate and wage rate were rising, while the number of those needing benefits were not. Thus, benefits could be raised without raising taxes. That may no longer be true.
“The baby boomers, a larger generation than their parents’, are living longer. These life expectancies will increase the amount of revenue necessary to keep the Social Security program in balance,” Burkhauser said.
By the year 2015, tax revenues will equal needed benefits, but because of interest, the trust fund will continue to rise, he said.
However, by the year 2037, the plan will be insolvent because trust funds will be exhausted, Burkhauser said. “Tax revenues will not cover tax claims.”
The redistribution of income usually varies on economic standings. For the wealthy, the amount is “quite small,” Burkhauser said.
In 1985, there was a 3 percent return for high income, 3.5 percent for average income, and 9 percent for low-income households.
By understanding the realities of demographic changes, people must realize that increasing taxes, or decreasing Social Security benefits, may be the only solution.
Another possible solution is pushing the retirement age. “If you live longer, you work longer or save more,” Burkhauser said.
If nothing is done, there will be a major crisis, he said, and the burden will be left on the shoulders of future generations.
“There’s no cost-free solution,” he said. “The more the delay, the increase in taxes or decrease in benefits will be that much more?We have 35 years to prepare.”