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How Would Seniors Fare in 2070 under the Bowles-Simpson Social Security Plan?

How Would Seniors Fare in 2070 under the Bowles-Simpson Social Security Plan?. Virginia Reno, Vice President for Income Security National Academy of Social Insurance September 16, 2011 B318 Rayburn House Office Building www.nasi.org 202-452-8097. The Social Security Baseline Today.

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How Would Seniors Fare in 2070 under the Bowles-Simpson Social Security Plan?

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  1. How Would Seniors Fare in 2070 under the Bowles-Simpson Social Security Plan? Virginia Reno, Vice President for Income Security National Academy of Social Insurance September 16, 2011 B318 Rayburn House Office Building www.nasi.org 202-452-8097

  2. The Social Security Baseline Today • Benefits are modest: average retirement benefit of about $14,000 a year • Yet benefits are the main source of income for most seniors who receive them • For 2 in 3, Social Security is half or more of their total income • For 1 in 3, Social Security is almost all they have (90% or more of their income)

  3. Looking Ahead to 2070… • Will scheduled benefits be affordable? • Will scheduled benefits be adequate?

  4. Scheduled Benefits Seem Affordable

  5. Even as more Americans are over 65

  6. Will scheduled benefits be adequate in 2070? $1,110 $950 Source: Author’s estimates using 2011 Trustees Report.

  7. The Social Security Challenge The 2011 trustees report finds the program is: • 100% solvent over the next 25 years; • 90% solvent over 50 years; and • 87% solvent over 75 years. Adjustments in revenues, benefits, or both, could close the remaining gap.

  8. Bowles-Simpson Social Security Plan Would… • Cover new state and local workers • Raise revenues: Slowly lift the cap • Lower net benefits • Further raise the full benefit and early retirement age • Lower the COLA (“chained” CPI) • Change the benefit formula • Partially offset cuts with modest benefit increases

  9. Bowles-Simpson Plan Relies Mostly on Benefit Cuts • Most of the plan’s solvency solution comes from benefit cuts. • Revenues (lifting the cap) account for: • 31% of the solvency solution on average over 75 years. • 21% of the solvency solution by the end of 75 years. In contrast, nearly 80% is from benefit cuts.

  10. The Micro-simulations • MINT-5 Model projects a future population with demographics and work histories. • Starts with Survey of Income and Program Participation (SIPP) linked to SSA wage and benefit records. • Models the change in benefits for individuals under new Social Security rules (Bowles-Simpson). • Assumes no change in behavior in response to policy changes. • A snapshot of benefits for persons age 62 and older in 2070. • Compares benefits under the Bowles-Simpson proposals to those scheduled under current law.

  11. Beneficiaries by Gender in 2070 under Bowles-Simpson Plan Percent with Benefits Lowered by 20% or More Men Women

  12. Beneficiaries by Age in 2070 under Bowles-Simpson Plan 62-69 70-79 80-89 90 +

  13. Beneficiaries by Race & Ethnicity in 2070 under Bowles-Simpson Plan 28% 26% 48% 44%

  14. Beneficiaries by Household Income in 2070 under Bowles-Simpson Plan 73% 54% 45% 27% 7%

  15. Asking the Right Question is Key How will we craft a Social Security program for the future that is both well-financed and provides adequate retirement security for the children and grandchildren of today’s retirees?

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