Explaining Social Security Benefits

The public is learning a lot about Social Security these days, and so is NPR's Mara Liasson. In a story broadcast on April 29, she made a mistake. Now, she corrects herself with an explainer about how benefits are calculated.

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RENEE MONTAGNE, host:

As President Bush pushes to transform the country's most popular government program, Americans are learning a lot about Social Security. That includes our national political correspondent, Mara Liasson. Mara reported last Friday on the president's proposal to ensure the solvency of Social Security by changing the way benefits are calculated. She made a mistake in that report, and today she sets the record straight.

MARA LIASSON reporting:

Last week I did a story for MORNING EDITION on the president's plan, explaining that lower-income people would continue to receive the same percentage of their working income replaced by Social Security as they do today, while higher-income people would see a decline in the percentage of their working incomes replaced by Social Security. That part was correct. But I also said that under the current Social Security system all retirees get roughly the same percentage of their income replaced. That was not correct, as several helpful and knowledgeable NPR listeners have pointed out to me in e-mails. Clearly, I needed to do some more reporting. So I called Stephen Goss, the chief actuary for the Social Security Administration. He explained that the current system already is somewhat progressive. In other words, the lower your average monthly income, the greater the percentage of that income you get in Social Security benefits.

Mr. STEPHEN GOSS (Chief Actuary, Social Security Administration): The way the benefit formula actually works is that we look at the level of people's average earnings over their entire career--over their highest 35 years of earnings--and on the basis of their highest 35 years of earnings we then develop the level of their benefit. And the benefit formula that we already utilize is indeed a progressive benefit formula.

LIASSON: So the Social Security system already has a sliding scale that is more generous to lower-income workers. At the low end, it gives benefits worth almost 50 percent to people who've worked all their lives for about $20,000 a year. At the high end, it gives about 27 percent to someone who's consistently made $90,000--the maximum amount taxed by Social Security. But if President Bush's plan is enacted, that sliding scale would get a whole lot steeper. In 75 years, says Goss, the lowest earners would still get the same percentage of their income replaced, but those making the maximum $90,000 would see their Social Security benefits reduced to just about 13 percent of their working incomes.

If you're smack in the middle--earning about $37,000 a year or its equivalent in the future--you would get 34 percent of your income replaced instead of the current 43 percent. In the president's plan, the addition of private investment accounts would provide an opportunity, but not a guarantee, that those investments would make up for some of those benefit cuts. The president's plan represents a fundamental shift from a broad social insurance program where the government supports all workers in their retirement to a program where the elderly would be kept out of poverty and most people would have to rely more on themselves. Stephen Goss.

Mr. GOSS: It is intended and it would, if followed through in this formulation, result in benefits not being affected from what are scheduled under current law for the bottom 30 percent of workers, and then scale benefits down to a greater extent for people above. That would certainly have a significant influence and require the people who are in the top 70 percent of earnings levels pay more attention towards their own personal savings or their private pensions or their personal accounts that they may have through the system.

LIASSON: Republican leaders in Congress are beginning to craft a bill based on the president's proposal. They hope to find something that will unite their party and even appeal to a few Democrats. As they work, they'll be explaining these same kinds of details to their constituents--who are learning a lot more about Social Security. Mara Liasson, NPR News, Washington.

MONTAGNE: This is NPR News.

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