Financial experts tend to agree that if reforms are made early
to Social Security, there will be a lesser degree of impact on
current youth.
Social Security at the end of 2004 sustained 48 million
beneficiaries and covered 159 million workers and their families,
according to the recently released 2005 Annual Report of the Board
of Trustees.
Though many UCLA students may not think Social Security is
relevant to them, reforms will impact them in various ways
depending on different forecasting factors, UCLA business
professors say.
Currently, the future of Social Security is contingent upon
certain things, including the size and characteristics of the
beneficiary population, the level of monthly benefit amounts, the
size of the work force and the level of workers’
earnings.
These are all dependent on demographic, economic and program
factors, according to the Board of Trustees report.
Under the Social Security Act, which was instituted in 1935, the
six-member board was established to oversee a variety of insurance
funds.
One of its major functions includes annually reporting the
financial and actuarial costs to Congress.
The Board of Trustees anticipates that beginning in the year
2017, the cost of supporting the benefits will exceed the amount of
taxable income due to the baby boomers of the 1950s. Baby boomers
are expected to retire when today’s youth are in their middle
age, and this will result in a higher ratio of consumers to
workers.
“We haven’t matched those birth rates,” said
Michael Bazdarich, senior economist for the Anderson forecast.
If no Social Security reforms are enacted by 2041, the report
suggests that beginning that year, there could be a payroll tax
increase of up to 18.10 percent or a decrease in benefits of up to
32 percent by 2079.
Bazdarich adds that the standard age of retirement of 65 is also
anticipated to increase to 75 or 80 in order to raise the Gross
Domestic Product.
“The sooner adjustments are made, the smaller and less
abrupt they will have to be,” according to the Board of
Trustees report.
The current reform that is being debated is that of account
privatization.
“Bush’s whole plan is kind of a Trojan horse to
shift from defined benefits plan to defined contribution plan. All
the rest is just political hot air,” Bazdarich said.
Currently, Social Security works under the defined benefits
plan, in which workers receive a statement of the amount made and
expected benefits once the worker retires.
The main purpose of Bush’s reform is to change the defined
contribution plan in which a worker has the ability to invest their
money in stocks, Bazdarich said. In this case, the government does
not promise the worker anything but the profits of the
worker’s investment in the form of benefits.
If the stock market isn’t as successful as the benefit
plan, then the contribution plan won’t work, Bazdarich
added.
“There is no way for the government to stay on the defined
benefits plan the way demographics is going. (By privatizing) you
are gaining something; it is one way to ensure (Social Security) is
around,” Bazdarich said.
Reforming the system has been talked about for more than a
decade according to Jim Courtney, agency spokesman for the Social
Security agency.
“None of what they (Congressional debates on Social
Security) are doing has any impact on this problem down the road.
If only we could produce more goods and services 30 years from now.
All this arguing really doesn’t do anything to increase
production,” Bazdarich said.