Social Security in the United States: Overview and Outlook

This document was prepared by Helvia Velloso, consultant of the United Nations Economic Commission for Latin America and the Caribbean, ECLAC, Washington Office. Prepared as a support to the document "Shaping the Future of Social Protection: Access, Financing and Solidarity" presented in the XXXI ECLAC Session Period carried out in Montevideo, Uruguay during March, 20 to 24, 2006. The views expressed in this document, which has been reproduced without formal editing, are those of the authors and do not necessarily reflect the views of the Organization. Introduction In response to the challenges posed by an aging population, countries all over the world are currently considering, or may have already enacted, fundamental structural reforms of their Social Security Pension programs. Demographic trends and other pressures on these programs are expected to increase sharply in coming decades. In particular, the looming retirement of the babyboom generation, declines in fertility rates, and increases in longevity are projected to cause a significant increase in the old-age dependency ratio: the ratio of retirees to the working-age population. Social Security is considered one of the United States' most successful government programs. Despite its success in helping millions of senior Americans avoid poverty, it faces a long-term deficit and policymakers have been considering changes to address these problems. The Trustees of the Social Security and Medicare systems (programs including age-related social expenditures); continue to stress the actuarial deficits of both systems in face of the imminent retirement of the baby-boom generation and pressures on health care costs. Moreover, the erosion of the U.S. fiscal situation since 2001 (when projections were for large surpluses and the elimination of public debt by 2009); and the re-emergence of budget deficits have revived concerns regarding the impact of these demographic trends on the longer-term fiscal position. This paper describes the Social Security system in the United States, discusses the state of the program today and the challenges ahead. Part I is an overview of the federal programs that are part of the social security system and provide support for the elderly, as well as of employersponsored and private pension plans. Part II discusses the system's balance between fairness, efficiency and sustainability, as well as income and retirement trends. Part III discusses reform proposals, and the last section offers some concluding remarks.