Social Security – Is the system crumbling?

Social security program is the largest government run program in the world and the biggest expenditure in the federal budget. The system which started during the dark days of depression, provides benefits not only to the retirees, but also to those who are disabled along with their dependent spouse, parents and children. It is primarily funded through taxes called Federal Insurance Contribution Act tax (FICA Tax) collected from millions of workers. Social security administration states that today, about 159 million people work and pay Social Security taxes and about 55 million people receive monthly Social Security benefits. So far it has been a big part of retirement income for millions of Americans. But what is the future of social security? Will this exist when today’s workforce retire? The future of social security looks bleak for many reasons. Due to insufficiency of funds the benefits may get reduced and one can not depend entirely on social security benefits. The major reason for depletion of this system is increase in beneficiaries and decrease in contributors.

Things fall apart; the center cannot hold – The Second Coming by W B Yeats

To understand this fully, we need to understand how the system works. Under this program, benefits are distributed to the current beneficiaries by collecting the FICA tax of 10.4% (of which 4.2% is paid by employee and 6.2% is paid by employer) from existing earners. Social Security Administration publication number 05-10024 states:

The money you pay in taxes is not held in a personal account for you to use when you get benefits. Your taxes are being used right now to pay people who now are getting benefits. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.

As noted above, the money paid by you today is used to pay the benefits to the existing retirees; and when you retire you will get the benefits from the workers who pay the payroll taxes at that time. The ratio between the workers who pay the tax and the retirees who claim the benefits matters a lot in this regard. In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers. As of today, each retiree’s Social Security benefit is paid for by approximately 2.9 U.S. workers! In 2010, there were only 1.75 full-time private sector workers for each person receiving Social Security benefits. In future, that is by 2035, it is estimated that approximately 2.1 U.S. workers will pay for each retiree!! These numbers tell you the tale of the system. This increase in beneficiaries and decrease in the number of workers is because of following factors:

Large number of retiring baby boomers

In the coming years, large number of baby boomers (baby boomer is a term used to denote the people who were born between 1946 and 1964) will retire from their work. Today, 26% of the total U.S. population are baby boomers. The retirement of this large cohort of Americans will have a great impact on the economy and society as a whole. Currently, just 13% of Americans are ages 65 and older. By 2030, when all members of the baby boom generation have reached that age, 18% of the nation will be at least that age, according to Pew Research Center population projections. This surge in number of retirees will increase the number of beneficiaries when compared to working population.

High unemployment rate

Increase in unemployment will further aggravate this situation. The current rate of unemployment in U.S. has come down to 6.3%. When compared to 2009-12, when it was mostly above 8%, this is significantly lower but it is still higher than the long term average of 5.83%. To put it simply, the money pumped into the system will decrease because of the decline in working population.

Rise in life expectancy

Increase in health care and improved lifestyle has ensured longevity and raised the overall life expectancy of individuals. Here’s the likelihood of 65-year-olds living to certain ages, according to figures from the Society of Actuaries:

  • Male. A 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90.
  • Female. A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90.
  • Couple. If the man and woman are married, the chance that at least one of them will live to any given age is increased. There’s a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. There’s even an 18% chance that one of them will live to age 95, as shown below.

Though it is a positive thing, the onus of taking care to pay for these elders increases the burden on system. The strength and competence of the system depends on large enough workforce which can adequately contribute to pay the benefits to the aging and growing population.


All the above factors clearly show the state of the program which has been keeping millions of Americans out of poverty for last 75 or more years. Further, as millions of Americans are highly dependent on their social security benefits, it seems the government will do something to make this system run smoothly (retirees make a huge voting block too!). Social security benefit will remain a part of retirement income for millions of Americans. It is enough to fulfill the part of an individual’s basic needs during retirement and it’s of great help to the families in case of disability or death of primary earner of the family.

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