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At 75, Social Security Is Showing Its Age

1 year ago
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Joann M. Weiner
Joann M. Weiner
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America's Social Security system celebrates its 75th anniversary today. Hurray. Thanks to this program, more than 55 million elderly or disabled Americans (and their dependents) receive an average of $1,070 each month. Yet, for all the retirement security that the program provides, its future looks bleaker than ever.
Earlier this month, the trustees for the Social Security Administration reported that the system will not be able to pay full benefits after 2037. Despite the dismal forecast, most politicians steer clear of any serious attempt at reform. It's one of those issues described as the "third rail of politics" since any elected official who dares touch it faces certain political death. What else would you expect from a program with so many millions of beneficiaries, most of whom are old and vote and don't want to see their benefits cut or taxes increased?
Still, Social Security is in need of help. It is now paying out $41 billion more in benefits than it is collecting in taxes. And, although economic recovery will help restore some of the program's revenue, the Social Security Administration's latest report says that deficits will be a permanent feature starting in 2015 and that the trust fund will be exhausted by 2037 --- four years earlier than projected just three years ago.
Private analysts confirm this dark picture. The Committee for a Responsible Federal Budget (CRFB) projects that Social Security faces a $5.4 trillion shortfall in what it has promised to pay and what it actually is able to pay.
What to do about it? Barring any sudden change in mortality or fertility rates, in simple terms benefits have to trim or taxes have to increase.
On the benefit side, options include increasing the retirement age or changing the cost of living adjustment to reflect a more realistic picture than it now does. Monthly benefits could be cut or the number of years used to calculate earnings could be increased. On the tax side, the payroll tax rate could be raised or the amount of wages subject to the tax could be increased. One option that is rarely discussed is to change Social Security from an entitlement program to a means-tested program so that only those with financial need would receive Social Security. Which poison would you choose?
One of Social Security's biggest problems comes from the way the program is funded. The system runs on something known as "pay as you go," meaning that taxes levied on current workers pay for the benefits of current retirees (by contrast, under a fully funded system benefits are paid from accumulated earnings). When created back in 1935, the system worked since there were more than 40 workers paying into the system for every retiree drawing from it. Today, there are just three workers supporting every retiree and before we know it, each worker will have his or her own retiree to support. With 80 million baby boomers retiring in the next 20 years, the numbers don't look so good.
Social Security has had one remarkable success in the name of Ida May Fuller. She worked for three years and paid $24.75 into the program. She received her first check from Social Security --- for $22.54 --- in January, 1940 and from that time until she died at age 100 in 1975, she received $22,888.92 in benefits.
None of us will be so lucky. Those born after about 1960 will likely contribute more to the system than they'll receive in benefits. With this type of return, it's no wonder that some workers feel they might be better off providing for their own retirement rather than trusting the government. Of course, the notion of funding retirement through private investing makes a lot more sense when the stock market provides a higher return than Social Security (historically, the stock market has provided a 7 percent annual return compared with just 2 percent for Social Security).
Social Security reform nearly happened in 1998 when President Bill Clinton and the then Speaker of the House, Republican Newt Gingrich, reached a tentative agreement to put Social Security on a sound financial future by making choices that were unpopular with each of their respective constituencies. As Steven M. Gillon, a professor at the University of Oklahoma and resident historian at the History Channel, writes in The Pact: Bill Clinton, Newt Gingrich and the Rivalry that Defined a Generation, the revelation of Clinton's affair with White House intern Monica Lewinsky derailed those efforts as Clinton needed all the support he could find just to stay in office. (Note: I had heard the same story from a former senior Republican staff member in an interview on an unrelated matter a few years ago.)
But, today is Social Security's 75th birthday, so perhaps now is not the time for such dismal thoughts. For those who wish to celebrate this milestone, go to the agency's web page or to the calculator to estimate your benefits
Filed Under: Economy, Taxes, Social Security, Woman Up
Tagged: committee for a responsible federal budget, Social Security Administration, Social Security trust fund
More articles from Joann M. Weiner »

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5 Comments

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dknteddy

Expanding the pool of those donating to Social Security is essential. This means increasing the upper income limits to pay in, and, really, friends, welcoming immigrants, who are young workers and will cheerfully pay taxes if they get a job where income is reported and taxes are withheld. If they are forced to work illegally, with no reporting of income and no taxes withheld, plus the threat of deportation if they report and pay anyway, we are refusing to accept donations to Social Security from about 15% of our work force.

August 14 2010 at 6:52 PM Report abuse rate up rate down Reply
psvi

There are a lot of millionares and rich retired people taking social security and if they paid in they are entitled. I do believe that if anyone makes 100,000.00 per year in retirement was to collect half of their social security or was given a tax rightoff for their social security instead of cash it would go a long way to help pay for those who contribute and are dependent on their social security.These are only my thoughts but atleast they are thoughts about saving a necessary program and keeping it out of the hands of greedy polticians who talk the talk but do not walk the walk

August 14 2010 at 4:11 PM Report abuse +1 rate up rate down Reply
eflowc

Social Security is doing just fine. The most successfull government program ever; low administrative costs, pays for itself as it goes along, backed by treasury bonds, what's not to like? You can wheel and deal in the stock market if you like but most Citizens do not. It's the Rock of Gibralter: it's always there, and that's what citizens need and count on for their retirement. There are some things that everyone should have to do in this great nation; paying into social security is one of them. It is part of our community.

August 14 2010 at 1:14 PM Report abuse +5 rate up rate down Reply
1 reply to eflowc's comment
billsauto4u

I agree! If the others don't believe in taking care of our children and elderly, they can give their SS checks back, refuse their childs free lunch and not use the emergency rooms. I for one will help provide for the general good of this country. My mother is old and hopefully I will be to! Most americans have very little saved for retirement as it is. If they think it is so bad here, they should try another country. They would be back in a flash.

August 14 2010 at 3:34 PM Report abuse +3 rate up rate down Reply
freedombt10

How many americas die even before they reach 62 or 65 yrs of age,where is that money going to people who never paid into it,or had a few yrs paying into it.

August 14 2010 at 12:26 PM Report abuse +3 rate up rate down Reply

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