Retirement Income:

Implications of Demographic Trends for Social Security and Pension Reform

HEHS-97-81: Published: Jul 11, 1997. Publicly Released: Jul 11, 1997.

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Pursuant to a congressional request, GAO provided an overview of the trends and key issues relating to retirement income, focusing on: (1) demographic and economic trends affecting retirement income; (2) the status of Social Security's long-term financing problems and proposals to address them; and (3) the extent of pension coverageand retirement saving and how to ensure that Americans can count on them throughout their retirement years.

GAO noted that: (1) as the elderly live longer, they will need retirement income over longer periods; (2) since fertility rates have been declining, the number of the elderly will grow as a share of the population; (3) while the income of the elderly has improved considerably over the past 50 years, demographic trends may slow or reverse such improvements; (4) the nation must confront how the trends will affect the distribution of income between workers and retirees, between the population's working and retirement years, and between high and low earners; (5) these trends pose long-term financing challenges for both Social Security and the federal budget; (6) currently, Social Security revenues exceed expenditures; (7) the excess revenues are invested by law in federal government securities and make the total federal deficit lower than it would be otherwise; however, in just 15 years, expenditures are expected to exceed cash revenues, according to Social Security Administration (SSA) projections; (8) at that point, the government's general fund will have to make up the difference--in effect, repaying funds owed to Social Security; (9) such repayment will present a significant and growing challenge for the overall federal budget; (10) by 2029, without corrective action, the trust funds will be depleted, and Social Security's revenues will fund only 70 to 77 percent of benefits; (11) to restore Social Security's long-term financial balance, a number of reform options are available within the current structure of the program; (12) some proposals go beyond restoring financial balance and call for fundamentally restructuring the Social Security system; (13) these proposals attempt to shift more of the responsibility for retirement income from the federal government to individuals; (14) solutions to Social Security's problems will inevitably affect other sources of income and could give them an even more significant role; (15) the proportion of workers covered by pensions has not increased substantially since 1970; (16) ensuring that Americans have enough retirement income to meet their needs will require that the nation and the Congress make some difficult choices; (17) Social Security has been an effective agent for ensuring a reliable source of retirement income and greatly reducing poverty among the elderly; (18) the effect of changes to the system on other retirement income sources and their effects on various groups within the elderly population should be well understood before decisions are made; and (19) the interplay of budget and savings effects will have to be carefully considered before any reform proposal is adopted.

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