Of the total $1.53 trillion in federal expenditures in 1995, Social Security was the largest, accounting for nearly 22 percent, or $334 billion. The figure is greater than the amount spent on all other entitlement programs, except Medicare, combined. By 2005 spending is expected to reach $556 billion (constant dollars). Alarmingly, the baby‐boom generation will not begin retiring until approximately 2010, causing the cost of the program to balloon enormously.
The growing fiscal imbalance is a mathematical certainty that cannot be totally blamed on Congress. It is caused by the “graying” of America and the increased number of elderly who will collect benefits for a longer portion of their lives, coupled with a reduction of the number of workers available to pay for their benefits. Increasing costs of living and higher standards of living (as reflected in higher wages) also are causes of the program’s growth.
After years of fiscal recklessness and political avoidance, policymakers are now faced with four choices: reduce benefit payments by altering the benefit formula or restricting eligibility, increase funding for the program, balloon the federal debt (and deficits), or restructure the program to allow individuals to save money in private accounts that yield higher returns than the current system. We cannot wait to act, as conventional wisdom suggests, until 2030–the year of projected insolvency. In approximately 2013 inflows to the program are projected to be insufficient to pay beneficiaries. To provide for adequate planning, the choice must be made well before then.