Personal Financial Planning

SSA Commissioner Urges Rescue Plan

Speaking in June before an audience of AICPA technical managers, Social Security Administration Commissioner Kenneth S. Apfel shared his views on the major challenges confronting his agency, including the projected insolvency in 2034 of the Old-Age, Survivors and Disability Trust Fund.

Apfel’s appearance was part of a nationwide educational campaign to drum up support for President Clinton’s plan to use federal budget surpluses to pay down the national debt and devote the resulting interest savings to extending the trust fund’s solvency until 2054.

The 2000 annual report of the Social Security board of trustees said that in 2015 trust fund expenditures will begin to exceed payroll tax revenues. Beginning in 2025 trust fund reserves may be used to pay benefits. And unless an alternative is found, when those reserves are depleted beneficiaries may receive only 72% of the amounts due them. (See “ More On Social Security Reform ,” JofA, Feb.99, page 12.)

“This is not only an issue of finance, budgeting and economics,” Apfel said. “It’s also about determining what is an adequate benefit for retirees.” He noted that over the next 30 years, the number of seniors will double as baby-boomers retire. So, in his view, it makes sense to diversify the trust fund portfolio with equities, which could increase rates of return and obviate some benefit reductions and tax increases.

“But the government should not direct those investments,” Apfel said. “Instead, it could use index funds and other arm’s-length vehicles to effectively remove itself from that role.”

Apfel has another reason to think a new strategy is essential. The annual Social Security retirement benefit ($9,600) for those earning an average wage is less than 40% of their income before retirement ($25,000). Most financial planners say retirees need about 75% of their preretirement income to maintain their standard of living, but not all have savings and pension benefits to make up the difference.

Some retirees will benefit from the provisions of the Senior Citizens’ Freedom to Work Act of 2000 (PL 106-182), which President Clinton signed April 7. Retroactively effective January 1, 2000, it eliminated the retirement earnings test for beneficiaries between the ages of 65 and 69. Before its passage, those who earned more than $17,000 a year lost $1 in benefits for every $3 in earnings over that amount.

Apfel noted that the search for a comprehensive solution to the trust fund solvency problem is central to the presidential election debate. But regardless of who wins the presidency, CPAs should ensure their clients are mindful of one factor that will not change. “Social Security benefits alone will continue to be inadequate for retirement,” Apfel said, “so we also need to educate people to save more.”


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