Can We Afford Social Security When Baby Boomers Retire?

Social Security Brief No. 22 ~ May 2006

Summary: How affordable are Social Security cash benefits projected to be when baby boomers retire? This Brief examines various measures and finds:

• The number of Social Security beneficiaries per 100 covered workers will increase from 30 in 2005 to 46 in 2030 and to 50 in 2050.
• Social Security benefits will rise from 4.3 percent as a share of the total economy today to 6.1 percent in 2030.
• When baby boomers are retired, the total number of people each worker supports (including workers themselves, children, retirees, and other nonworking adults) will not be as large as it was when the baby boomers were children.
• As a share of the total economy, spending for Social Security benefits when baby boomers are retired will grow less than spending for public education grew when baby boomers were children.
• While baby boomers may have been a surprise when they turned up in record numbers to enroll in kindergarten in the 1950s, their retirement six decades later is not. Policymakers began to plan as early as 1983, when Congress lowered the cost of Social Security benefits for boomers and later generations by raising the age at which unreduced retirement benefits will be paid.
• Workers’ wages are projected to grow in real terms (that is, faster than inflation). By 2030, real wages will increase 33 percent. Even if policymakers chose to balance Social Security’s finances solely by a tax rate increase, workers’ net wages (after paying the higher tax) would still be 28 percent higher than they are today.
• While earnings that are taxed to pay for Social Security represent 38 percent of the total economy, other national income is not taxed for Social Security purposes. Broadening the tax base, reducing scheduled benefits, raising the Social Security tax rate, or allocating other kinds of revenue to Social Security are ways to improve Social Security finances.

Perhaps the key question is not whether we can afford the population we will have. Rather, it is how Americans will choose to allocate national resources to accommodate an aging population. Many options exist to balance Social Security finances for baby boomers and those who follow.

Funding for this brief is provided by The Actuarial Foundation, based in Schaumburg, Illinois.