How Secure is Social Security?

Written by Jill Chapin. Posted in Opinion, Politics

Tagged: , , , , ,

Published on July 16, 2012 with 30 Comments

With 55 million beneficiaries receiving $725 billion last year, it’s not surprising that Social Security benefits are projected to dry up around 2034.

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 . . . .”

Jill Chapin

Jill Chapin

Jill Chapin has been a guest writer and columnist in several Los Angeles area papers for over fifteen years. She has written a bilingual parenting book titled, "If You Have Kids, Then Be a Parent!" and a children's book entitled, "My Magic Bubble."

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  • EruditeMan

    Although I am very close to my own retirement I can think of avenues to be used to restore Social in-Security. Congress should restore Social in-Security to what was originally intended. Everything that was added to it in the 1960s should be repealed and only what was originally written into the Social in-Security Act should exist now. In addition to this every civil service employee, railroad employee, and especially every US Senators, Representatives, and all federal, state, county, city and local government employees should be immediately required to contribute both the employee and the employer withholding amounts from all paychecks. In addition to this no non-citizen or anchor baby should be allowed to collect a single penny from Social in-Security. After these things have been done early retirement age should be immediately increased to age 72 and normal retirement age should be immediately increased to age 75. Income maximum for Social in-Security contributions should be immediately raised from current maximum to at least $500,000 and should be indexed for inflation. Social in-Security payments should be exempt from all federal and state income taxes and never, never, never classified as taxable income. United States should return to the gold standard and a constitutional amendment returning the coining of currency should be returned to US Government responsibility and the private bank, Federal Reserve should be removed from everything related to United States Currency and taxed heavily for its irresponsible behavior between 1913 and now. After these things have been done all foreign aid should be stopped and service fees should be instituted so that United States world policeman duties are made to be  revenue generating duties in the world. All US loans that have been made to foreign nations should be repaid and if not repaid in contractual fashion collateral of foreign nations should be confiscated and become permanent property of the United States. The United States should stop subsidizing the United Nations and begin charging fees for services offered to the UN. 

  • http://www.facebook.com/Brookse32 Eric Brooks

    Jill, your article completely fails to report on the most crucial factor in the current Social Security system which is the fact that U.S. workers only pay into the Social Security on their first $110,000 in income. Above that amount of income they pay absolutely nothing.

    So a person who makes $110,000 a year, AND a person who makes $1 BILLION a year, both pay EXACTLY the same Social Security tax.

    Clearly, acknowledging this blatantly obvious fact would have utterly changed the conclusion of your article.

    The only fix necessary to make Social Security self funding for at least the next 26,000 year cycle in the Mayan calendar, is to simply remove the economically idiotic and totally undemocratic $110,000 cap.

    Can you please explain to us how that fix would not work?

    • Jillchapin920

       Thanks for your comment, Eric.  You are right about the cap being too low for billionaires.  I said that raising taxes is an option; I deliberately didn’t go into whose taxes, or how much.  That would have been fodder for another article, but I’m glad you brought it up.  More food for thought.

    • http://www.facebook.com/joetheeconomist Joe Economist

      Eric,

      Social Security is not welfare.  The 110K person and the 1B person pay the same amount because they get back the same amount. 

      Your idea by the way is not fixing Social Security – you are rewriting it.  Historically, FDR rejected the original draft of Social Security because in his mind it was the same old public dole, which he described in the 1935 State Of Union as “a subtle narcotic to the human spirit’.  If FDR was right, it is economically stupid to remove the cap.

      Even if you rewrite the system to replace the values of FDR, there is no research that suggests that this change will make the system solvent much less self-funding.  It is urban myth as far as I can tell promoted by people who do not know the depth of the problem.  What research there is says that it will not even make the system solvent, much less self-funding  But I will challenge you just like the last thousand people : where is the research and I am not talking about agenda-driven ‘non-paritisian’ think-tanks.

      Here is real data.  The Social Security Trustees say that to be ‘self-funding’ you would need to add 20.5 trillion dollars to the Trust Fund in 2012 dollars.  Page 15 of the report.

       

      • http://www.facebook.com/Brookse32 Eric Brooks

         Your claims about FDR are absolute nonsense. His program was actually much more aggressive than what ended up passing, and included universal health care. Read some history books…

        • http://www.facebook.com/joetheeconomist Joe Economist

          Here is an article from the Washington Post which disagrees with your assessment. 

          http://www.washingtonpost.com/opinions/would-roosevelt-recognize-todays-social-security/2012/04/08/gIQALChd4S_story.html

          • http://www.facebook.com/Brookse32 Eric Brooks

             The Washington Post is a neo-liberal pro-capitalist establishment rag that promoted the war on Iraq and reported the ‘fact’ that there were ‘weapons of mass destruction’. To trust the Post as an accurate recorder of history, especially about socialist policy, is therefore absolutely absurd. Note that I said, ‘read some history books’ – not ‘read the papers’…

            • http://www.facebook.com/joetheeconomist Joe Economist

              The Washington Post isn’t credible but EPI, a think-tank, qualifies as proof? 

              This isn’t a book it comes from FDR’s 1935 State Of The  Union : ” The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual disintegration fundamentally destructive to the national fiber. To dole our relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of a sound policy. It is in violation of the traditions of America. Work must be found for able-bodied but destitute workers.  The Federal Government must and shall quit this business of relief.”
               
              “The Federal Government must and shall quit this business of relief” – FDR. 

              “The Federal Government must and shall quit this business of relief” – FDR.

              “The Federal Government must and shall quit this business of relief” – FDR.

              This is what I see in your writing.  You are too lazy to research any statement.  You are too lazy even to get information to form an informed opinion.  You don’t even bother to learn the meaning of the words in the debate.  You have no facts and cite unnamed ‘history books’ as though you have ever read them, or ever would. 

              You want to change the debate from facts to name-calling whether it is me and the Washington Post.  This is what passes for debate in America.  When you have no facts, you start name calling as though the more you type the righter you are.

              • http://www.facebook.com/Brookse32 Eric Brooks

                Again, what exactly are you talking about? The SSA and CBO reports which the web site points to, verify the facts. And what FDR said in political speeches, as with all politicians, doesn’t bear any relation to what he actually did in pursuing and passing policy. Subsequent to making that speech he was forced by the reality of the Depression and some seriously mounting mass public protest, to institute sweeping and expensive social welfare programs. You do understand the difference between a political speech and the actual passage of laws and programs do you not? And as to your all too typical troll tactic of accusing others of being lazy and not doing ‘research’ while you sit on your ass eating your personal equivalent of twinkies and cheese puffs, and insulting people on blogs all day, is pretty amusing.

  • Richmondman

    People who don’t pay into Social Security should not receive Social Security.  And while some  cry about the SS caps on income that only impacts 1%, how about the 45%+ who don’t pay a dime in either Social Security or income taxes?  Everyone needs skin in this game.

    • http://www.facebook.com/joetheeconomist Joe Economist

      Rich –

      A couple of points.  First, no one who has not contributed for 40 quarters gets Social Security.  Oddly enough illegal immigrants pay into the system when they use fake SSNs, but they can’t collect.  It is a surprisingly big number.

      About 94% of the work force participates in Social Security.  They lose 10.6% of their wages to the OAS portion.  While they pay in Social Security, many do not pay Federal taxes because of the EITC.  This is an offset to help low-wage workers afford Social Security.

      Taxing the 1% will not help.  As you tax more, future benefits raise.  This is why increasing the cap isn’t terrible meaningful.  The problem also is that these people are net-contributors to the system.  They tend to get back less than they contribute.  So if we raise taxes on them, and they retire it actually hurts the system.  You have to be very careful in dealing with this audience because they get back as little as $0.45 on the dollar contributed – that is PRE-TAX.

  • http://www.facebook.com/joetheeconomist Joe Economist

    Jill, This commentary doesn’t really help people understand the problem.  You are applying the wrong numbers taken well out of context.  You are looking at a 50% increase in life expectancy of a retire at 10 times the cost.

    “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,,,.Fast forward to the year 2007, when the estimated life expectancy jumped to 77.9 years of age.”

    The issue isn’t life expectancy but rather life expectancy of a retiree.  Life expectancy is increasing because of decreased infant mortality.  The problems in Social Security is not caused by fewer babies dying.

    Life expectancy of a retiree has increased but nothing close to the rate at which the costs of the system have increased.  Originally the cost was 2% against an inflation adjusted cap of $47,000.  Today it is 10.6% against 110K.

  • http://www.facebook.com/joetheeconomist Joe Economist

    “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.”

    Again, I think your numbers are wrong and out of context.  If you adjust the workers based on the cost, today there may be as many as 45 (1935 worker equivalents) contributing for every retiree. Worker to retiree ratios are only meaningful if you hold the cost of the system constant – which we haven’t done. 

    Separately it is less than three to 1 and will decrease to 2 to 1 over time.

  • http://www.facebook.com/joetheeconomist Joe Economist

    I work with Fix Social Security Now.  We provide information on all of the alternatives.  Your article perpetuates many of the myths about the system.  It is myth that is getting in the way of reform, not facts.

    The basic problem is that Americans have not contributed enough to cover the benefits we take.  This fact was made clear in 1944 by AJ Altmeyer who ran Social Security at the time.  He told Congress repeatedly that payroll taxes needed to rise by more than a factor of 3.  Here is his 1944 testimony which is provided by SSA’s historical records : http://www.ssa.gov/history/aja1144a.html

    Instead of raising taxes, Congress did the politically expedient thing to do : raise benefits.  Between 1950 and 1965, Congress raised benefits every election year with wide support from both parties.  You can’t give away dollars for dimes forever.  That process came to a crashing halt in 1983, when the Social Security system reached a state of insolvency.  At which point we had the 1983 Social Security reform which largely agreed that future generations would pay for it.  Now those people have a vote which is why we are where we are today.

    Our site is http://www.FixSSNow.Org.  We provide information on all of the alternatives in down-to-earth terms without all of the polarizing rethoric.

    • EruditeMan

      I think you’re overlooking issues which exacerbate Social in-Security problem. When Social in-Security was 1st enacted many more people were contributing than receiving benefits. Medicare, Medicaid and drug prescription programs weren’t structured then as they are now. Railroad employees, federal, state, county, city civil service employees aren’t forced to contribute to Social in-Security. In the sense that some Social in-Security recipients get monthly payout and aren’t required to pay any income tax on their monthly payments and some Social in-Security recipients are required to pay income taxes on their monthly payments this most definitely IS a welfare program with those recipients who don’t pay income tax on their monthly benefits receiving welfare at the public trough.

      • http://www.facebook.com/joetheeconomist Joe Economist

        Civil service and Congress has contributed to Social Security since 1984.  Today there are about 6 million workers whose occupation isn’t covered by Social Security.  These people can’t collect until they have contributed 40 quarters.

        The economic returns of Social Security can be found in the Social Security Administrations’ Moneys-Worths studies.  They show that there are a number of economic factors like marriage which make Social Security a publically subsidized income stream (welfare).  The most significant factor of welfare is what generation you were born in.  The first 40 years of workers rich, poor, tall or short, were major beneficiaries of welfare.  As I pointed out, in 1983, the system had 40 years of promises and not a penny to pay for them.

         

    • http://www.facebook.com/Brookse32 Eric Brooks

      As I pointed out to the author of the piece, the most crucial
      factor in the affordability of the current Social Security system is the fact that U.S. workers only pay into the Social Security on their first $110,000 in income. Above that amount of income they pay absolutely nothing.

      So a person who makes $110,000 a year, AND a person who makes $1 BILLION a year, both pay EXACTLY the same Social Security tax.

      So the only fix necessary to make Social Security self funding, is to simply remove the $110,000 cap.

      • http://www.facebook.com/joetheeconomist Joe Economist

        Eric,

        You may have pointed it out, but you are repeating URBAN MYTH.  As I point out there is no research that backs your statement.  What research that does exist completely rejects your statement. 

        You should probably research the subject a little, starting with the difference between solvency and self-funding.  The politicans number is the 75 year solvency because it makes the problem appear smaller.  You can’t even find research that will tell you it fixes this on a political basis.

        • http://www.facebook.com/Brookse32 Eric Brooks

          Joe, What in the hell are you talking about? There is a $110,000 cap on Social Security taxes. Period. That is a fact, not some amorphous object of research. And any fool with a junior high school mathematics education can figure out in their head with no need for a calculator, or even a pencil, that getting rid of the cap would get rid of any future problem with solvency (which is not even coming at us in the first place until 75 years from now). Since you appear to need to see actual proof of this rather obvious fact, you can see a report that the SSA and the CBO crunched the numbers on this and proved it at http://www.epi.org/publication/webfeatures_snapshots_20050217/ – Any questions?

          • http://www.facebook.com/joetheeconomist Joe Economist

            Eric,

            This may sound a little brutal, but I don’t sense that you know the difference between ‘solvent’ and ‘self-funding’.  I am very confident that you do not understand how the 75 year parameter affects the discussion. 

            You may not need a calculator but you have to understand the difference between; “Self-Funding” and “Removing the Social Security earnings cap virtually eliminates funding gap”.  According to the Trustees of the system it is more than 12 trillion dollars.

            I am not sure that you even read the link you provided.  It was from 2005, and its footnotes for anything from SSA or CBO.  In 2005 the solvency of the system was roughly double what it is today.  EPI is a think-tank which isn’t really credible.  If SSA, CBO, or CRS has a report – stick with the original.  (Their research has problems but at least it isn’t the agenda of their fund raisers.)

            This is from the report “Using relatively pessimistic assumptions about future growth in productivity and immigration”.  I have never found any assumption used by the Trustees as pessimistic.

            This is our review of ‘raising the cap’ – we will publish your counter view provided that it has legitimate sources.

            http://www.fixssnow.org/contentdetails_Increasing-The-Cap_33.aspx

            • http://www.facebook.com/Brookse32 Eric Brooks

               Oh brother… Take your pedantic vapid pseudo-intellectual economist-speak somewhere else ok pal? Everyone reading this understands perfectly well what we are talking about regardless of what idiosyncratic Chicago School of Economics labels you put on it. Removing the cap would solve the problem, and you clearly know this as well as I do. You are simply purposely dissembling in an attempt to distract people from the obvious truth because you don’t want them to become aware of it, and act on it. Which firms do you work for (and/or hold interest in) exactly?

            • Richmondman

              Joe – some people believe anything can be fixed if you raise taxes enough, particularly if you raise taxes on others, especially the hated “1%” (ie; not me).  Don’t worry that eliminating caps won’t do nearly what he thinks (most ultra rich take the bulk of their income in capital gains, which is not subject to SS taxes). Don’t worry that 50% of Americans don’t pay any taxes.  Don’t worry that Social Security was never intended to be a tool for wealth distribution.  Truth is never as romantic as ideology.

              • http://www.facebook.com/joetheeconomist Joe Economist

                @778e0de3f071f4464fb631f9fccf60e6:disqus Here is what I worry about.  There are millions of people who depend upon this system.  It serves an audience that doesn’t adapt well to economic change.  When it goes into crisis, the human suffering will be terrible.

                The people like Eric don’t care about the future misery.  They want to feel morally superior to those greedy rich people in the present. 

                He doesn’t care whether raising the cap works or not.  When it doesn’t, it is simply another opportunity to make the government bigger.

                 

                • EruditeMan

                  Evidently Marxist, Socialist, Dummycrats like Joe economist have no concept of human suffering associated with economic rise and fall of nations like Roman Empire, post WWI Germany, Argentina, France, Greece, Italy and others. People like Joe Economist don’t care about future misery. They feel morally superior to responsibly conservative people who rely on their own resources to care for themselves without feeding at public trough. He doesn’t care about personal freedom and individual responsibility and would rather have Big Government offer another teat on which to feed and create more government dependence of voters. Millions have been taught by Social in-Security Administration to be fiscally irresponsible (just like Marxist, Socialist, Dummycrats and post 1935 Republicans in USA legislature). Government’s made it nearly impossible for an individual to be free to rely upon oneself. Social in-Security is supposedly “voluntary” but just try to function in US society without getting or using a Social in-Security Account number. F.Y.I. It can be done but is extremely hard to do. Joe Economist wants to increase marketplace costs and tax everyone more by inflating currency. When Government spends more than it confiscates through tax policy it borrows from private banks and foreign governments to whom interest payments are made. If Government creates and pays for a new teat it becomes a permanent program and government grows. In 1913 the USA absolved itself of Constitutionally mandated responsibility to coin currency and regulate its value. The private bank named Federal Reserve began taxing US citizens by inflating Federal Reserve notes. From 1913 to 2012 Federal Reserve note value has been reduced by 328.7%. What cost $1,000 in 1913 will cost $22,746 in 2012. Removing the income cap on wages taxed by Social in-Security will solve no problem but will help continue the growth of the teat of Government dependency. How much does Joe Economist think businesses and US society have been forced to spend through the years as to adjust market goods price tags when inflation forces them to do so to remain in business? How long does Joe Economist think it will take for QE1, QE2 and pending QE3 and $1+ trillion deficits to result in hyper-inflation? Does Joe Economist think inflation and hyper-inflation cause any pain for people?

  • EruditeMan

    Joe Economist is deluding himself, just as B.H.O. and the other DummyCrats who think letting the Bush tax cut remain for those earning l.t. $250,000/yr and restoring tax for earning g.t. $250,000/yr will make a dent in the DummyCrat’s deficit spending since B.H.O. moved into 1600 Pennsylvania Ave. Social in-Security is suffering from DummyCrat congress of L.B.J. years using Social in-Security to subsidize Medicaid and Medicare. What’s required is to eliminate all programs not included in 1935 Social in-Security Act and to let tax revenues accumulate instead of spending like drunken DummyCrats usually spend.

    • http://www.facebook.com/joetheeconomist Joe Economist

      “Social in-Security is suffering from DummyCrat congress of L.B.J. years”

      You realize that the entire Social Security Trust Fund in the late 60s was roughly 20 billion or 140 billion on an inflation adjusted basis.  I think that about 8 billion was borrowed during LBJ’s term, or about 50 billion in today’s terms.  Every penny was repaid with interest by 1983 when the Trust Fund was completely exhausted.

      Just for prospective, GWB borrowed roughly 1.2 trillion from the Trust Fund. 

      • EruditeMan

        It’s too bad Joe Economist views Social in-Security myopically and ignores all costly additions to Social in-Security program since 1935. “Social in-Security is suffering from DummyCrat congress of L.B.J. years” includes adding Medicaid, Medicare and drug purchase programs to Social in-Security program. Reference to L.B.J. DummyCrat congress has nothing to do with any so-called borrowing from Social in-Security “Trust Fund” or repayment. Social in-Security Trust Fund does not, and will not, exist unless the US Government establishes and continues to establish budgets each and every year that have zero deficit AND 100% of the US Federal Debt has been paid and the US Government pays zero interest to the private bank named Federal Reserve.

        • http://www.facebook.com/joetheeconomist Joe Economist

          Technically, Medicare is funded and operates separately from Social Security.  I concede that spending outside of Social Security does create problems inside of the Social Security system.  But you are going to blame LBJ for what other presidents allowed medicare to become.

          And if we are going to blame LBJ for spending money, whose final budget was about 8 billion away from being balanced, are you equally going to blame Reagan’s military build-up, the Clinton banking fisacos, GWB for adding the prescription add-on, and now Obama.  It is fair to say LBJ’s willingness to buy votes will be part of the failure that Social Security will become.  But it is probably small change compared to more contemporary presidents.

          • EruditeMan

            My previous comment stands.  Unless there is zero remaining US debt and zero budgetary deficit there is no Social in-Security trust fund. Are you suggesting that if there were zero employee and zero employer contributions to the Social in-Security account there would be zero funding differences to the Medicare fund? I rather doubt you are. I am going to blame ALL administrations that spend $0.01 more than fiscal year tax revenues and therefore borrow $0.01 for which USA pays interest to the private bands of to foreign governments.