Interview: Michael Astrue
The Status of Social Security Today
Michael J. Astrue was sworn in as Commissioner of Social Security on February 12, 2007. He will serve a six-year term that expires on January 19, 2013. As head of the Social Security Administration, Astrue has responsibility for administering the Social Security programs (retirement, survivors and disability). This is an edited transcript of an interview conducted on August 27, 2007.
"Social Security was never intended to fully provide for retirement. That is a myth that circulates in certain quarters, and it is a very dangerous myth because if you don't fully prepare for retirement through private savings, you are likely to have a very difficult retirement."
How is a retiree's monthly social security payment calculated?
Social Security contributors pay 6.2% of their gross pay up to $97,500 and their employer pays the same amount. If someone is self-employed then they pay both ends of the 6.2%. The Social Security Administration looks at the 35 highest earning years a person has paid in to Social Security and the highest amount that they have paid into FICA in those years when it determines the amount a retiree will receive.
How much does the typical retiree receive in benefits?
The average is in the range of about $1,000 a month and the maximum would be about $2,100 a month, adjusted for inflation.
Can I contribute more than 6.2% if I want to?
No, you can't, and I guess one way to think about it is that we are really a defined benefit program as opposed to a defined contribution program, so if you voluntarily send more to the Treasury, you are not going to get any more benefit at the end of the day.
When can you receive your benefits?
You can take retirement benefits as early as 62. You can postpone taking benefits up to the age of 70. If you postpone benefits you get more on a monthly basis later, and that is scaled on life expectancies of the population in general. For many women who would expect to live longer than most men, it may therefore make sense to delay benefits if they can afford to do so.
Say I'm an individual who had an average income my whole life, and I started drawing Social Security at 65, and I'm receiving $1300 or $1400 a month. And I decided that I'd like to get a higher social security check. Can I go back to work, pay additional Social Security for a few more years and thereby increase my income from Social Security?
Yes, you can go back and improve your earnings record. Again, if you have maxed out and you've hit the maximum level for the requisite number of years, you can't do any better than that. But if you had years out of the workforce - and this is particularly true for women, who are more likely to take time out to raise families – you can often significantly improve your position with additional years of work.
Will my Social Security benefits be limited if I start drawing Social Security and then go back to the work force and make a good salary?
If you take early retirement benefits and you work during that time period, we have something called the earnings test which will reduce your benefits during that time period. Although there is some compensation on the back end after you have stopped working for adjustment. There is also some taxation of Social Security benefits as well.
According to the Social Security Administration web site, there are 31 milliion retired workers and dependents. How many more people are going to receive Social Security payments in the future, say ten years from now?
We are going to see an increase both in disability payments and retirement payments as the Baby Boomers age. So the first Baby Boomer files for retirement in January 2008, and that will become an increasing work load for us over time. But even before those Baby Boomers take retirement, it is a demographic fact that if you get older, you are more likely to become disabled, so we are already being hit by a wave of claims filed by Baby Boomers for disability benefits.
What, if anything, is the Social Security Administration doing to inform people about the reality of retirement costs?
Social Security was never intended to fully provide for retirement. That is a myth that circulates in certain quarters, and it is a very dangerous myth because if you don't fully prepare for retirement through private savings, you are likely to have a very difficult retirement. So one of the things that we are trying to do more of is to encourage people to think about savings for retirement early. We have this year for the first time encouraged in the annual earning statement that we send to all Americans over the age of 25, to look at a government website that promotes financial literacy called www.mymoney.gov
This is a consortium of government agencies that have gotten together to promote financial literacy and it is a great website.
Several experts we've interviewed have told us that the Social Security problem can be solved with math, but there is nothing that can save Medicare as it presently exists it needs significant reform. What is your observation?
I wouldn't agree with the overall characterization, but the thrust of the comment has some merit. For all the angst about Social Security, it probably is true that resolving the problems of Medicare is going to be tougher and more urgent because right now, under current actuarial assumptions, the Medicare trust fund goes bankrupt in 2017, which isn't that far away. By contrast, we are not fully solvent over the 75-year period that we would like to be, but we will not run into a bankruptcy issue under current assumptions until 2041. It is also true that there is a fairly clear definable set of tough options and Congress knows what it will have to do at some point. I have a lot of confidence that they will make some hard choices.
Based on your observations, in what directions do you think Social Security will go in order to preserve the overall health of the system?
There is a relatively small range of things that can be done for retirement and survivors and a few variations on the same theme. We can raise taxation by increasing the FICA contribution or increasing the cap on FICA payments. Right now, you don't pay any more FICA after you reach $97,500 in income. We could reduce benefits directly in some way or adjust the age at which people get benefits. We could in theory alter the investment strategy. Right now, 100% of the funds are invested in Treasury Bills. That has been the tradition from the beginning. There are larger demographic trends. We could try to influence those, though I don't think that is particularly likely in our society. Some countries have gone out to try to increase the birthrates. Theoretically we could do that, although it is unlikely to be part of the debate.
So in the year 2041, if nothing were to change, I should start to worry about the solvency of Social Security?
Right now the situation is we have a positive balance if you look at money coming in and money going out on an annual basis. That will shift in 2017 when we will start paying out more than we are taking in. And in the way that the actuaries measure the trust funds, we will have exhausted the trust funds in 2041 if there are not changes made in the meantime. I think that everybody who is really familiar with the system and the political process believes that there will be changes made so that when 2041 comes, that number will have been pushed out probably decades. The question is exactly how we do it and when. Those are painful choices, but everybody has confidence that at some point the Congress and executive branch will step up and make sure that Social Security is there for workers of the future.
The First Baby Boomers are applying for Social Security benefits. Should they go to the Social Security office for it?
Well, I would discourage that. With the rapidly growing workloads and the budget cuts our field offices are increasingly overwhelmed, particularly in certain parts of the country there are very long waits, particularly in the beginning of the month when payments are made. In most cases, it is much more efficient to take advantage of our rapidly growing array of online forms and services. Increasingly, the work that you need done can get done online at www.ssa.gov
. You can do it in the privacy of your home, it can be very quick and efficient, and you don't have to take the chance that you may be sitting in one of our waiting rooms for a very, very long time.
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