Statement by Kenneth S. Apfel,
Commissioner of Social Security
before the Senate Committee on Budget
Taskforce on Social Security

February 24, 1998

Mr. Chairman and Members of the Task Force on Social Security:

Thank you for inviting me here today to participate in the discussion of the future of Social Security.

Three weeks ago, for the first time in 30 years, President Clinton submitted to the Congress a balanced budget. The President's fiscal year 1999 budget maintains fiscal discipline while investing in the critical needs of the American people. In a historic shift, this budget delivers surpluses over the next 10 years--$1.1 trillion--and, faced with the prospect of a sizable surplus accruing, the President has called on Congress to reserve 100 percent of the surplus until all necessary measures have been taken to strengthen the Social Security
program for the 21st century.

I would like to begin today by discussing why Social Security is so important today, in the past, and for the future; the reasons why the program must change; and the process the President has outlined to determine t hose changes.

Why Is Social Security Important

For over six decades, Social Security has been there for Americans. Since it began paying benefits in 1940, the Social Security program has provided security for retired workers, as well as their families and survivors, and later for disabled workers and their families. Today Social Security provides benefits to more than 43 million workers and family members, and about 95 percent of the population participates in Social Security through work and their contributions to the system.

While Social Security provides retirement benefits for all who are covered, it is important to note that it is the nation's greatest anti-poverty program. Social Security benefits help assure retirees that they will not be dependent on their children or society for retirement income. Without Social Security, about 50 percent of those beneficiaries over 65 would be living in poverty. Social Security benefits are the maj or source of income for two-thirds of aged beneficiaries and the only source of income for 16 percent.

As I mentioned, Social Security is not just retirement benefits. It is America's Family Protection Plan. It provides survivor and disability benefits to partially replace a family's income lost due to the disability or death of a worker. Over 30 percent of Social Security beneficiaries are receiving disability and survivor benefits, and those programs make up over 30 percent of the benefits Social Security pays.

Disability and survivor benefits provide significant financial protection: for example, the average benefit paid today to a disabled worker with a spouse and children is about $1,2 00 per month. For a family in which the worker has died, leaving a widow with two children, the average monthly survivor benefit is about $1,500. For these people, Social Security enables them to live fuller and more independent lives.

Social Security Is Progressive

Even with regard to retirement benefits, many people still judge the Social Security program from too narrow a perspective. Social Security is not only a plan for retirement and the return on investment is not the sale criterion against which it should be assessed.

As a social insurance program, Social Security spreads the cost of protection against the risk of lost income due to retirement, death, or disability over the entire working population, with more protection, per dollar earnings, for lower paid workers and for workers with dependents. The benefit formula is progressive in that it is designed so that those most likely in need--the lower-paid worker--receive benefits that replace a higher proportion of preretirement earnings than do the benefits for higher earners. The fact that lower earners get a higher rate of return helps the program provide a foundation of protection for all Americans.

Social Security benefits are related to the worker's average lifetime earnings subject to the Social Security tax. In general, the higher the earnings, the higher the monthly benefit. Virtually all workers can expect positive rates of return from Social Security, even after adjusting for inflation, regardless of how we now choose resolve the shortfall expected in 2029 .

Reasons Change Is Needed

From its beginnings in the 1930s, Social Security has been financed on a pay-as-you-go basis, with current costs met from current revenues. Any funds not needed to pay current expenses are invested in interest bearing U.S. Government securities, which provide interest income to the Old Age and Survivors Insurance and Disability Insurance Trust Funds.

As a result of the 1977 and 1983 legislation, Social Security financing began to move away from pay-as-you-go financing in the direction of partial advance funding. At the beginning of 1997, the trust funds had a balance of $567 billion, and income was expected to exceeded outgo by about $89 billion, resulting in a balance of $656 billion at the beginning of 1998.

Some future milestones for the program are:

2012 OASDI expenditures will begin to exceed annual tax revenues ; the program will need some of the annual interest income to make benefit payments.
2019 Expenditures will begin to exceed annual total income, including trust fund interest; the trust funds will need to begin using their principal to make benefit payments.
2029 Trust fund reserves are depleted; then-current income will pay only about 75 percent of annual benefit out go.
2070 Then-current income would only cover about 70 percent of annual benefit out go.


The cost of the program will increase in the future especially in 2010 -2030 as the baby boom generation reaches retirement age. Another important reason for the increasing cost of the program is that Americans are living longer, healthier lives. In 1940, the average life expectancy at the age of 65 was about 12.5 years. Today it is 17.5 years. Today there are about 3S million Americans over the age of 65; by 2030, that number will nearly double.

This increase in older Americans, combined with a lower birth rate will place great strain on our retirement system. While currently there are 3.3 workers per beneficiary, in 2030, that ratio will decline to 2 workers per beneficiary.

Process For Change

President Clinton' s commitment to strengthening and preserving the Social Security program is clear, and I believe his call to action presents an historic opportunity. While previous changes to the system--and, indeed, its very beginning--have been forged in times of crisis, today we are in the enviable position of having the advantage of a good economy and time to prudently plan to change the system. But we must not squander this opportunity.

As the President announced in his State of the Union message, we should not committ the projected budget surpluses for any other use until we strengthen the Social Security system. The President 's message was imple and very clear : Save Social Security first .

The next step is to engage in a major national dialogue. President Clinton has called on the American Association of Retired Persons and the Concord Coalition to jointly hold a series of nonpartisan regional forums throughout the country on Social Security. The President, Vice President, and members of the Cabinet will participate in these forums, as well as events organized by the Pew Charitable Trust.

The President is encouraging all Americans to attend a Social Security conference or forum--or to organize or host one if there aren't any planned nearby. We need the views of all Americans on this issue.

By the end of this year, the President will host a bipartisan White House conference on Social Security as a culmination of these events. This conference will be followed by negotiations with congressional leadership on how best to accomplish reform; to achieve, as President Clinton has said, "a landmark for our generation--a Social Security system that is strong in the 21st century. "

Ways to Use the Surplus

As you know, the President's budget projects that the surplus will be $9.5 billion in 1999, followed by projected surpluses of $8.5 billion in 2000, $28.2 billion in 2001, $89.7 billion in 2002, and $82.8 billion in 2003.

With regard to the ultimate Social Security reform package, many different proposals have been put forward about how these projected budget surpluses--or some portion of them--could be used to bolster the reform effort. For example, it has been suggested that surpluses could be used to buy down the debt; that the surplus could be transferred to the OASDI Trust Fund and invested in government bonds or alternatively, the Trust Fund could invest those surpluses in equities.

Others have proposed that the OASDI Trust Funds be allowed to use existing balances to redeem government bonds equal in value to the surplus and invest those funds in equities. Others have proposed that the unified surplus be used to fund individual accounts. The appropriate role of the surplus in the ultimate reform process is clearly a question that deserves scrutiny.

Public Understanding Critical

Before having discussions about reform proposals, it is important that Americans understand the Social Security program. What do I believe Americans should understand about our Social Security program? What i s it about this program that reduced to its essentials makes it of such importance to the American electorate?

I want all Americans to understand the economic facts about Social Security. As I have already noted, beginning in 2019, the trust funds will start declining and will be exhausted by 2029, if no changes are made to the current program. After the trust funds are exhausted, however, annual revenues will be able to pay three-quarters of current-law benefits.

I want all Americans to understand what Social Security has meant to older Americans. The plight of older Americans used to be a disgrace. Now, Social Security provides them with a solid me a sure of economic security even if they outlive the actuarial tables, and their savings. It also provides many of them, and their children, the advantages that only living independently can offer.

I want all Americans to know that Social Security is more than a retirement program. I want younger people to know that not only will Social Security be there for them in the future, it is there for them NOW. How many people know that 1 out of every 3 Social Security beneficiaries is not a retiree but a disabled worker, or a member of his or her family, or a survivor of a worker who has died? They need to know that.

I want all Americans to know that Social Security was never intended to provide for all of a worker's retirement income needs. Pensions and personal savings have always been and should be part of a sound financial retirement plan.

I want all American s to understand that the changing demographics o f the country are the primary driver of the need for change. There is an unalterable dynamic at work: by 2030, there will be nearly twice as many older Americans as there are today, putting great strains on our retirement system.

Finally, I want all Americans to understand one important fact: as attractive as any option for change might be, there are tradeoffs that must be accepted if we choose it. These are complex issues, and the advantages and disaavantages of each will have to be discussed and examined.

Preserving the Successes of the Program

As we begin this dialogue, we need to reflect on what features have led to Social Security's success. The dialogue will most certainly be about how to address the challenges facing Social Security in the future, but it will also be about how we preserve and protect the accomplishments of the program that has served this nation so well for over sixty years.

First of all, Social Security is dependable. Social Security has been there each and every month. Millions of Americans count on the arrival of their Social Security benefit. Today, more than 90 percent of the elderly in this country receive Social Security. Americans of all ages must be able to count on Social Security in the future. We have an obligation to provide a dependable source of income that Americans can use to plan their financial future with confidence.

In addition, Social Security is efficient. Less than one penny of every dollar collected is used for administering the Social Security program. It is a program that is portable and it is a program that provides benefits that are indexed to inflation.

Social Security is also the greatest anti-poverty program ever created. Without Social Security, nearly 50 percent of today's elderly would be living in poverty. Social Security doesn't make people rich, but it gives Americans rightly deserved financial independence. This financial protection, however, is not just for the elderly. Social security also protects working families through disability and survivors insurance.

Social Security ensures that all workers receive an equitable benefit through a progressive benefit formula. It is a program that is universal and fair. Proportionately larger benefits are provided to lower income workers who will need it most.

Finally, Social Security is a public trust. Social Security spreads the risk associated with disability, premature death, and old age among the entire working population and provides a guaranteed benefit that is adequate and fair.

As we begin this dialogue, we would do well to question whether changes to the program preserve and protect these important accomplishments: whether Social Security continues to be a benefit people can count on; whether the elderly, disabled, and survivors of workers are protected from financial hardship; whether the program is efficient; whether the program is universal and fair; and whether the program is maintained as a basic public trust. The dialogue about how we ensure the solvency of Social Security in the 21st century will need to include these critically important questions.


There are tough choices ahead of us. The discussions we are undertaking must address the critical foundations of the program and define for us whether reforms continue to preserve and protect these foundations. Moreover, members of my generation need to address the question of whether we would unfairly burden our children and grandchildren by not dealing with this issue now.

In closing, Mr. Chairman, I believe that every American needs to participate in the coming dialogue. We will need open and knowledgeable discussions in "kitchen-table" terms about the wide range of Social Security issues. Ultimately, our efforts will be judged on whether we have protected and strengthened Social Security for the 21st century.

I would like to thank the task force for its efforts to explore ways to restore the long-term health of the Social Security program. I look forward to working with you, members of the task force, and other members of Congress as we begin our national discussion.