Key Issues > Fiscal Outlook > Answers to Key Questions about Social Security’s Future

Fiscal Outlook: Answers to Key Questions about Social Security's Future

With virtually every American either contributing to or receiving Social Security benefits, the program’s financial future is important to many people. Our Guide, released on October 27, 2015, presents the facts on Social Security's financial challenges, options to address them, and tools to evaluate what they mean for the future. The Bipartisan Budget Act of 2015 subsequently made a number of changes, including moving the projected date of Disability Insurance trust fund depletion to 2022.

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On this page, you’ll find an overview of the challenges facing Social Security. Specific options are detailed in the other tabs, along with a tool for evaluating them.

 
 

This page lists a range of options (for changing the benefit formula or making other changes that might affect program costs and revenues). These options could also apply to the Disability Insurance program.

 

These options are based on proposals introduced in Congress or suggested by experts, and are not exhaustive. GAO is not recommending or endorsing the adoption of any specific option.

This Guide was released on October 27, 2015. The Bipartisan Budget Act of 2015 subsequently made a number of changes to Social Security’s programs, including moving the projected date of Disability Insurance trust fund depletion from 2016 to 2022. This page lists a range of options that address challenges specific to the Disability Insurance program.

 

These options are based on proposals introduced in Congress or suggested by experts, and are not exhaustive. GAO is not recommending or endorsing the adoption of any specific option.

"How should policymakers evaluate proposals to modify Social Security?"
A Framework for Evaluation

Social Security is so deeply woven into the fabric of our nation that any proposed change should take into account the program in its entirety. Changes that address solvency will present trade-offs regarding the distribution of benefits, revenues, and program costs, but Social Security's challenges also extend beyond projected solvency. Proposals to change Social Security often combine various changes to the program in a comprehensive package. These changes can interact with or offset one another, so it is important to evaluate complete proposals to capture such interactions. Since evaluating such proposals can be complex, GAO developed a broad framework that considers not only projected solvency but other aspects of the program as well.[1]

Specifically, the framework for evaluating proposals uses three basic criteria:

1. The extent to which a proposal achieves "sustainable solvency" and how it would affect the national economy and the federal budget.

"Sustainable solvency" is when the balance between program assets and costs is projected to be positive throughout at 75-year period and stable or rising at the end of the period.
 

2. The relative balance struck between the goals of individual equity and income adequacy.

Individual equity is whether individuals receive benefits over the course of a lifetime that are reasonable compared to their past earnings and contributions. Income adequacy is the level and certainty of benefits for individuals and families.
 

3. How readily a proposal could be implemented, administered, and explained to the public.

Factors such as feasibility, complexity, and cost of implementation and administration can influence policy choices. In addition, changes that are not well-understood could have trouble achieving broad public acceptance and support.
 

Different policymakers may value certain criteria or underlying attributes over others. For example, if policymakers want to protect economically vulnerable populations, then proposals emphasizing income adequacy might be preferred. As they fashion a comprehensive proposal, however, policymakers will ultimately have to balance the relative importance they place on these and other criteria. Careful monitoring and periodic evaluation, accompanied by potential refinements, should therefore be part of the implementation of any change.

CRITERION 1: FINANCING SUSTAINABLE SOLVENCY

  • Improving projected solvency for the long term requires that Social Security either receives additional revenues, reduces costs (through benefit reductions or stricter eligibility requirements), or undertakes some combination of the two.
  • It is important to consider how proposals to achieve solvency would be financed, since this could have important implications for the federal budget and national economy.
  • Projections over periods as long as 75 years involve uncertainty because they depend on many demographic, economic, and program-specific factors. As a result, even if Social Security projections suggest that the trust funds are solvent, future demographic patterns and economic trends could emerge that affect solvency in ways that have not been anticipated.

CRITERION 2: BALANCING ADEQUACY AND EQUITY IN THE BENEFIT STRUCTURE

  • Social Security’s benefit structure addresses the twin goals of individual equity and income adequacy. Virtually all proposals to change Social Security address the concept of income adequacy, but some place a different emphasis on it relative to the goal of individual equity. Differences in how various proposals balance these competing goals will help determine which proposals will be acceptable to policymakers and the public.
  • The effect of a proposal on income adequacy for subgroups of beneficiaries—such as dependents, survivors, people with disabilities, or certain economically vulnerable populations—will depend on how the proposal changes benefits for these subgroups. Proposals that feature a program-wide benefit reduction might also include enhanced benefits for specific subgroups, which can substantially improve their income adequacy. As a result, any evaluations of adequacy should consider a proposal's provisions taken together as a whole.
  • Proposals could also be assessed from a "group equity" perspective. For example, as mentioned earlier, longevity gains have not been uniformly achieved across subgroups of the population, so proposals can have different overall impacts on different segments of the population.
  • Proposals may also have different effects on different generations. The sooner a proposal is implemented, the greater the potential equity across generations, since the benefit reductions or tax increases required could be smaller than if the changes were made further down the road. Further, the cost of the changes could be spread across a larger group of workers.

CRITERION 3: IMPLEMENTING, ADMINISTERING AND UNDERSTANDING PROPOSED REFORMS

Feasibility of Implementation and Administration

  • Some degree of implementation and administrative complexity arises in virtually each proposed policy change to Social Security.
  • Another important consideration is the time it takes to phase in changes to Social Security. For example, changes to the full retirement age made in 1983 are still being phased in today.
  • Changes to DI may raise particular implementation challenges, given the program’s inherent complexity. For example, proposals that would change the program’s design may require pilot testing to evaluate the potential effects and obtain information on implementation challenges or unintended consequences.
  • The broad implications and interactive nature of Social Security and related federal programs may call for the creation of a comprehensive package of policy changes. Implementing a comprehensive package could require collaboration across the Social Security Administration (SSA), other federal agencies, and state agencies, as well as various congressional committees responsible for different programs.

Public Understanding

  • A reasonable amount of time will be required for the general public to understand how program changes might affect them, and to make adjustments based on these changes. For instance, individuals may decide they need to work longer. An outreach and education effort will be needed to increase public confidence and set expectations appropriately.
  • Retirement planning is, by nature, a long-term process, and it is important to give Americans not only the time to adapt their plans to changes in Social Security, but also the necessary information to do so.

[1] GAO, Social Security: Criteria for Evaluating Social Security Reform Proposals. GAO/T-HEHS-99-94 (Washington, D.C.: Mar. 25, 1999).

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Charles Jeszeck
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jeszeckc@gao.gov
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Daniel Bertoni
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