With the 82nd anniversary of Social Security, the government’s state-imposed retirement plan signed into place by Franklin Delano Roosevelt in August of 1935, upon us, it’s time to take into consideration some of the implications of this program. A program that is designed to provide United States citizens with income once they retire needs to have the money come from somewhere, and is that magical ‘somewhere’ able to pay out in the long run? Is this forced program both sustainable and ethical? Will this program even be worthwhile for the great-grandchildren of the Great Depression and Social Security? Let’s take a look at a few numbers to figure all of this out.
First, the big question: is Social Security even sustainable? When it was brought upon us by FDR, it seemed like a great idea, you pay into a government-sponsored program while you are employed, and then that entitles you to receive funds from workers once you receive retirement age. Social Security has three very specific trust funds that provide the necessary payouts, the OASI (Old-Age and Survivors Insurance), DI (Disability Insurance), and HI (Health Insurance). These trust funds permit for these government programs to pay out their benefits, and are essentially used as assets to shoulder the sustainability of the Social Security program.
The primary issue at the outset with a program like this is, what will happen to the balance if the ratio of workers decreases? What if the ratio of beneficiaries increases? That would decidedly upset the balance and mean that the beneficiaries, regardless of what they paid into Social Security, get less than the previous generation of beneficiaries. This is already a problem that we’ve encountered, with the last 35 years having a ratio of 3.3 to 1 for workers to beneficiaries, whereas its projected to shrink to 2 to 1 for workers to beneficiaries after 2030, the time when Millennials and Generation Z will be needing to plan for retirement.
The second but perhaps more pressing issue is whether or not Social Security can sustain itself, regardless of its trust funds. Economist Monique Morrissey certainly thinks so, praising the trust funds for running a surplus and that the funds as a whole are worth two and a half trillion dollars, and will only keep growing. However, if you consider the number of Millennials is 83.1 million as of 2015, a two and a half trillion dollar trust fund may not be able to support this number of people for 30 years of retirement, especially if we err on the side of safety and don’t anticipate large growth within the trust funds themselves.
The numbers would actually be more in line with the projected depletion of Social Security by the year 2037, by which time we will need to have either major reform or do away with Social Security altogether. The only way for reform would be to maintain Social Security past its projected expiration date, receiving less than we anticipated or paid into it by receiving 14 percent less than what beneficiaries currently receive. The projected life of Social Security is then estimated to last until 2057, by which time massive reforms would need to be put into place to keep Social Security alive.
Keeping Social Security alive relies on two things: the ability for the trust funds to provide money to Social Security, and the ability to implement higher taxes in the future to keep the program afloat. The solvency of the trust funds is more touchy than likely anticipated, considering that they do not have the safeguard of borrowing power: if they run out of funds, they run out of funds. They cannot borrow against their losses even if their taxes and available funds are insufficient. This is where the projected 2037 loss is anticipated, whereby the primary way to remedy the solvency of the trust funds will be to increase taxes.
Monique Morrissey’s support becomes apparent on the issue of taxes: in her perspective, one of the reasons Social Security is sustainable is because, all we’ll need to do to make up for the losses is just a “…modest payroll tax increase”. In her estimation, Millennials will be more or less forced into higher taxes, since we will be faced with the prospect of lower living standards due to potential decreases in Social Security payouts. Her belief is that people, on average, would rather receive a higher tax rate and receive more benefits because of it, and that is what we must do.
So, in reality, the economist is at the fault of her own reasoning by claiming that Social Security is sustainable, but only in the event that we agree to a tax increase? That doesn’t sound very sustainable to me. It seems like Social Security is a process that needs to die a slow market death to allow Americans to take charge of their own retirement investments.
Those Without Savings
What about all the Americans who do not have retirement savings? Currently, 23% of Americans have less than $10,000 in retirement savings, and 10% have less than $50,000, and 33% have no retirement savings at all. To put it into perspective, if you have a retirement base of $75,000 and have an income percentage of 5% off of that base, assuming you don’t reduce that base, you’re annual income is $3,750. This is saddening, and while we cannot speak for exactly why so few Americans have sufficient retirement savings, it is possible that the majority of Americans planned to receive Social Security upon retirement, since it was initially promised that Social Security would be guaranteed for taxpayers. A Social Security fact sheet stated that the average monthly Social Security payout is $1,360 a month, equivalent to a full-time minimum-wage worker. This is also an average that takes into consideration very wealthy beneficiaries who skew the data, so this amount is likely quite generous in consideration with what the average American worker is likely entitled to receive. The numbers, as well as information, provided by Social Security take advantage of the concept of the average, providing Americans with false hopes of guaranteed payouts when they know that the program can’t be maintained in its current state past a certain year, as well as payouts amounts that are likely not representative of the population.
What we have here is a system that simply cannot sustain itself and needs to be consistently revised and reworked in order to keep up with the needs and retirement goals of the American people. We saw it get reformed back in 1983, and it is likely going to get reformed once again in 2037. This is a failed, robbing system that forced American workers to pay into it, knowing full well that it cannot keep itself above water or provide sustainable income for Americans once they do decide to retire. Rather than planning their own retirement through tax-sheltered Individual Retirement Accounts or mutual funds, both contributing to their retirement and the economy, people are being forced to pay into a socialist retirement scheme that may not even follow up on their guarantees. This program has no place in capitalist America and hinders the average American’s investment potential and motivation to take charge of their own retirement. Social Security needs to be dissolved, and the American people need to take charge of their own lives and create a comfortable, sustainable retirement plan that suits their individual goals and needs.