Is Social Security Running Out?

You pay into it your whole career and expect to get paid when you retire. The unfortunate truth is that Social Security is running out; it’s already cashflow negative, and the program’s giant trust funds are starting to deplete their cash reserves.

It’s not as if this is some new revelation. Economists have known for decades that Social Security is not a sustainable program.

For Social Security to work, the program needs 3 employed workers to support one retiree. That ratio currently sits around 2.8 and is projected to dip as low as 2.2.

The money is simply not there. As it stands, the retirement income and medical benefits that millions think they already paid for aren’t going to happen. It’s a sticky problem that won’t solve itself.

There are simply too many retirees receiving benefits and not enough people paying into the system. It’s simple math. Even the United States Treasury Secretary admits this. The Treasury Secretary, along with the Secretary of Labor, Secretary of Health and Human Services, etc. published an annual report forecasting that Social Security’s trust funds will run out of money in about 15 years.

“Social Security’s total cost is projected to exceed its total income (including interest) in 2020 for the first time since 1982, and to remain higher throughout the remainder of the projection period,” the report found.

social-security-costs-vs-income
Source: Social Security Administration Trustees

They’re practically giving you a date to circle on the calendar.

How Modern Social Security Came to Be

In 1935, U.S. President Franklin D. Roosevelt signed into law the Social Security Act. Originally implemented to assist older Americans by paying them a continuing income upon their retirement.

The program was later amended to extend benefits to the spouse and minor children of retired workers, workers who become disabled, families in which a spouse or parent dies and, more recently, health coverage (Medicare).

The Social Security program is funded through the Federal Insurance Contributions Act (FICA) tax, a dedicated payroll tax. You and your employer each pay a percentage out of your wages.

Under the law, Social Security is financed by this designated tax, and any surplus money that isn’t paid out in benefits is used to buy U.S. government bonds held in the Social Security Trust Fund.

Essentially, the money that you pay through taxes is not the same money that you will receive later in life.

Instead, Social Security is primarily a pay-as-you-go system. The money you and your employer contribute now is used to fund payments to people who currently receive benefits, including those who have retired or are disabled, survivors of workers who have died, dependents and other Social Security beneficiaries.

So, what’s the problem?

The Future of Social Security (Or Lack Thereof)

clock-and-money

Americans are having fewer children and living longer, both of which contribute to an aging population. Baby boomers (born between 1946 and 1964) are retiring at a record pace, and at the same time, the working-age population will be getting smaller.

As we move forward, there will be fewer people putting money into the Social Security system and more people taking money out. Because of these factors, it has been estimated that all the money in the Social Security “bank account” will be exhausted in 2035. That means that, without any changes to the system, people in their forties or fifties could essentially not receive Social Security benefits during retirement, even though they are paying into the system now.

What Can Be Done?

After the trust funds run dry, we’ll need to match Social Security and Medicare’s expenses with their income. We can accomplish that by reducing expenses, raising revenue (i.e., increase taxes), or a combination of both.

One of the alternatives is raising the retirement age; in fact, the age at which workers are eligible for full benefits has already started creeping up from 65 to 67, depending on one’s birth year.

Life expectancies were much lower when they made 65 the full retirement age and people collected benefits for only a few years before they died. Many never collected at all. Now people routinely live into their 80s and 90s.

The Social Security outlook would vastly improve if the full retirement age was raised to 72 or even 75, starting sooner than later.

The Time to Act is Now

“With 10,000 Baby Boomers becoming eligible for Social Security every day, and with people facing a retirement crisis after still not fully recovering wealth lost during the Great Recession, the time to act is now.” – Rep. John Larson

That should send shivers down the spines of the millions of people who depend on Social Security as their sole source of income.

It’s too late to fix Social Security, plain and simple. Long gone are the days where Americans could have peace of mind about retirement, knowing they always had a check from Uncle Sam to fall back on.

Which leaves the question: What will you do?

This is America, of course. So, not all hope is lost. Investing in commodities like precious metals, and at the same time earning a monthly income from them, can provide you with an avenue to a prosperous retirement.

Act now and don’t let the Social Security Supernova blind you.