Is Social Security really in trouble?

The warnings are ominous.

“I want you to think about a Social Security system that will be flat bust,” President George W. Bush told an audience of young people on Jan. 11.

President Bush says the task of saving Social Security is urgent.

“So one of my jobs, one of my charges, is to explain to Congress as clearly as I can, the crisis is now,” said the president on Dec. 16, 2003.

A White House adviser wrote recently in a private memo, "The current system is heading for an iceberg."

Pro-White House interest groups are even ratcheting up the debate with television ads urging “Washington must strengthen Social Security."

All of this as the White House presses what it calls a reform plan: Allowing younger workers to invest a portion of their payroll taxes in the stock market.

Whatever the prescription for change, why does something have to be done? 

“We'd have to raise taxes tomorrow, or today actually, 28 percent, to pay for all the spending under Social Security that we have due,” says Laurence Kotlikoff, an economist at Boston University.

It all sounds awful, but is it really so bad? Is there a Social Security crisis?

Most Democrats say no. They contend the president is trying to scare people into supporting his plan for drastically changing the program.

“The future is not as bleak as some people would have the public believe,” says Peter Diamond, an economics professor at the Massachusetts Institute of Technology. “Social security is not bankrupt in the usual sense of the term — not going broke, not going ‘flat bust.’”

Here are facts beyond dispute:

  • Millions of baby boomers are nearing retirement which means more people will be taking out of the system than paying in.
  • In 2018, the Social Security Trust Fund estimates that it will take in less in taxes than it pays out in benefits. That's a red flag.
  • In 2042, according to estimates, the problem gets worse. By then, the trust fund will have used up its reserves, meaning that Social Security can only cover 70 percent of the benefits it has promised to pay.
  • In the next 75 years, according to estimates, the financial gap runs into the trillions of dollars.

But professor Diamond says, yes, in 2042, benefits will have to be cut, but retirees then would still get more money than today's retirees.

“We've got 35 or more years to phase in very slow changes that people can certainly adapt to and live with,” he says.

The Social Security debate has become both a question of urgency and a matter of how to change a program that has endured so long.