Social Security, the federal retirement system, is one of the most popular government programs in U.S. history. Unfortunately, it’s also in trouble and no consensus has emerged, either in Washington or among the public at large, on what approach the nation should take to fix it.
The Demographic Clock is Ticking
Social Security benefits, which are paid monthly to nearly 46 million people, are the backbone of the nation's retirement income system. Social Security was originally designed to provide one leg of a "three-legged stool" for retirement security, backed up with personal savings and employer pension programs. Increasingly, Americans have come to depend on Social Security. People generally are saving less (even counting 401(k) and IRA plans), carrying more debt, and are less likely to have corporate pensions than they were several decades ago. Federal statistics show that more than 40 percent of seniors would fall below the poverty line without their Social Security check.
The big question looming over the program is whether it can be sustained when the baby boomers enter their retirement years and put an unprecedented strain on the system. The crucial factor is the ratio of current workers to retirees. Contrary to what people sometimes think, Social Security does not create individual retirement accounts from the social security (FICA) taxes that are withheld from people’s paychecks. Rather, it was designed so that the current workforce pays for the benefits of current retirees. That works fine when there are significantly more workers than retirees. But what happens when there are fewer workers paying into the system than there are retirees drawing down on the fund? Current projections show that by 2030, there will be only two workers for every one retiree.
The first baby boomers become eligible for Social Security in 2008. By the time the entire baby boom generation retires, America's elderly population will double from its current size to about 80 million, and there will be many more people drawing Social Security benefits than people working and paying into the fund. The board of trustees that oversees the Social Security system projects that the program’s expenditures will exceed income in just 10 years (2017). The Social Security Trust Fund provides a cushion against these needs, but by 2042, the trust fund will be exhausted as well and the system will only be able to cover about three-quarters of the benefits promised. With a national debt that is already approaching an unprecedented $9 trillion – and that’s even before the first boomers retire – we cannot afford to simply borrow money to cover the shortfall. So something is going to have to change, because as time goes on the math will simply not add up.
This guide will help you consider the kinds of hard choices that the nation will need to make to ensure the long-term stability of Social Security and the federal budget. It suggests three alternative approaches we could take, and you might also have additional ideas you’d like to add to the discussion. What do you think is the best course of action to meet the challenges facing the Social Security system and the federal budget, and why?