The Social Security Act of 1935 was originally designed to provide one leg of a "three-legged stool" for retirement security, backed up with personal savings and employer pension programs. Increasingly though, Americans have come to depend on Social Security as their only means of support after retirement. Federal statistics show that 40 percent of seniors would fall below the poverty line without their Social Security check.

The program was based upon the ‘pay-as-you-go’ system, which uses the current workforce’s payroll taxes to provide current retiree’s benefits. Now, less than a hundred years after its passage, the Social Security Trust Fund faces many challenges to its continued solvency, the most immediate of which is the increase in the ratio of retirees to workforce. As the “baby-boom” generation begins to reach retirement age in the next 10 years, even fewer workers will be paying into the trust fund. Also, since Americans’ life expectancy has continued to grow longer, citizens receive benefits for an increasingly extended period of time. Trust fund levels also depend on America’s economic performance, which has been slow to recover from recent recessions. Social Security officials estimate that the trust fund will be exhausted by 2071; however, some experts say the date is closer to 2029.

George W. Bush made Social Security reform one of the central issues in his reelection campaign in 2004, and the domestic legislative priority of the first year of his second term. President Bush has stated his support for the creation of private personal retirement accounts instead of the current system. Democrats say that investing in the stock market is risky and will not ensure financial independence for the elderly. Several Republican Congressmen have expressed concerns about the private accounts approach as well, and the momentum for reform has slowed recently. nevertheless, the long-term insolvency issue will not go away, and at some point, this issue will be taken up anew.

Your Client:

The Brookings Institution, a non-partisan ‘think tank,’ has appointed your team to analyze the issue and prepare a report outlining viable approaches to reforming the current social security system.

The Question:

The central question is whether the Social Security program can be sustained in its current state when the baby boomers enter their retirement years and put an unprecedented strain on the system. If it cannot, then what is the most effective way to provide financial security to the nation’s elderly population?

Additional Resources:

www.publicagenda.org – Click on “Issue Guides”, then “Social Security”.

www.socsec.org – Click on the Facts section.

“Bush pushes social security reform” – BBC News Article, Feb. 11, 2004

Social Security Issues in 2004 – PBS Online NewsHour Special Report

http://www.ssa.gov/ - The U.S. Social Security Agency - Official U.S. Government Site

"Welfare and Social Security Policy", Ch.9 in Public Policy: Politics, Analysis, and Alternatives by Michael Kraft and Scott Furlong, CQ Press, 2004.