By Jill Chapin
July 16, 2012
We Americans are used to aiming high, we don’t plan for failure, we assume that we can work our way to success and nothing is too daunting for us in attempting the nearly impossible. But sometimes, stubborn facts can get in the way of this wonderful can-do spirit, and when they do, we need to deal with what is, as opposed to what we wish things were.
One of those issues spewing forth unpleasant facts is that of a looming Social Security insolvency. To better understand how we arrived at this critical point, it’s helpful to understand its inception back in the previous century..
According to information at www.socialsecurity.gov, age 65 was originally chosen as the retirement age for Social Security based primarily on old age pension systems in thirty states at that time. About half of those used 65 and half used age 70 as the retirement age.
The Committee of Economic Security decided that age 65 made more sense, and actuarial tables further showed that using this age produced a manageable system that could easily be made self-sustaining with only modest levels of payroll taxation.
But this was because back in 1935, when the Social Security Act was signed by FDR, the estimated life expectancy for all races and both sexes was 61.7 years. You don’t need to be a math genius to understand that most people weren’t even expected to reach the age of 65 when retirement benefits would begin to pay out. So of course it was a manageable program; the government simply did not expect to pay very many people for very many years.
Fast forward to the year 2007, when the estimated life expectancy jumped to 77.9 years of age.
But longevity wasn’t the only new wrinkle in the government’s challenge to keep up with paying out Social Security benefits. Another factor was the increasing numbers of Americans over 65 anticipating their Social Security checks to arrive in the mail.
In 1930, there were 6.7 million Americans aged 65 or older and around that time, there were about sixteen people depositing into the Social Security system for each person withdrawing. In 2000, there were 34.9 million over age 65, and today fewer than two people deposit for each one withdrawing.
And with 55 million beneficiaries receiving $725 billion last year, it’s not surprising that Social Security benefits are projected to dry up around 2034, according to reports in the Wall Street Journal and Bloomberg.com.
The sheer volume of people drawing from Social Security, coupled with a longer life expectancy will eventually render it unsustainable, and it will simply collapse from its own weight. Most fifth graders could grasp this concept.
So what can we do about it? We could raise the Social Security tax to accommodate the growing number of older Americans or we could raise the age of retirement to factor in our increasing life expectancy. Or both. It’s that simple. This problem is one of the few facing our country that is not that complicated. It’s basic math.
But raw numbers do not mitigate the harsh reality that we must work longer and/or pay higher taxes in order to ensure that in the long term, Social Security will be solvent for our children and grandchildren. In a perfect world, we could retire earlier to enjoy life before age-related infirmities begin to limit our retirement plans. But again, it’s those stubborn numbers that will foil our plans.
One thing we should do right now is to heed the following prophetic words of Thomas Jefferson to better understand, accept and adapt to the inevitability of change:
“I am not an advocate for frequent change in law and constitutions, but laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made and new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times . . . .”