Don’t plan on it

Emily Bialkowski

Managing Editor

Just so you know, I don’t plan on ever receiving Social Security, and it’s not because of short life expectancy.

The Social Security Act, enacted in 1935, was a legislative act that created the Social Security system in the United States. The act was an attempt to limit what were seen as dangers in modern American life, including old age, poverty, unemployment and the burdens of widows and fatherless children. By signing this act, President Roosevelt became the first president to advocate federal assistance for the elderly. His first attempts to do so, mind you, were constitutionally challenged much like the Affordable Care Act has been challenged today.

Social Security is primarily funded through dedicated payroll taxes. Tax deposits are formally entrusted to one of several funds, including the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.

Social Security is currently keeping roughly 40 percent of all Americans age 65 or older out of poverty. That’s the good part. No one wants to see the elderly, disabled or widowed in the streets without food or shelter.

To avoid this problem, the money (tax) taken from your employer and your paycheck goes to the trust fund for investment and sometimes robbery. I say robbery because over the course of time our federal government has taken money from the fund to pay for other budget deficits.

Now comes the bad part – the part where the money evaporates.

Rapid population growth of the baby boom era created a huge bulge of workers whose Social Security  payroll taxes provided a surplus that helped fund the overall federal budget. However, after 2012 these same workers’ entitlement to retirement and Medicare benefits is projected to begin exceeding the income from Social Security payroll taxes, thus requiring that an ever increasing share of the federal budget go to pay for Social Security.

For the past several years, Social Security’s trustees have been reporting on the accelerating depletion of that program’s trust fund. As recently as 2008, the trust fund’s doomsday was projected to be as far away as 2041. But over the past several years that collapse date has inched forward and now sits at 2033. Unfortunately, even that projection looks like it’s a bit too optimistic. It turns out that there’s a very real risk that next year’s report will move that date even closer.

Every year, Social Security rolls over its maturing long-term treasury bond holdings, picking up new ones to replace the ones that are expiring. Because of exceptionally low interest rates, Social Security is earning less interest on its new bonds than it did on its old ones. That lower interest, along with the fact that the program now takes in less in taxes than it spends in benefits, means the trust fund is on very shaky ground.

It’s that simple: Americans pay more out in benefits than we take in.

Case in point: My husband’s grandmother only paid into Social Security for 10 years. She was born in 1919. At 94 years of age she is drawing more benefit than she ever paid in. And by no means do I want Grandma June in the streets. It’s just that the money is running out and no one has presented a solution to date. A smaller contributing population, larger retired population, greater life expectancy and low interest rates are evaporating the fund.

What do you do? The latest projections keep Social Security alive until 2033. I say plan on it not being around after that. I’m sure a program of some kind will exist, but I don’t think a program that supports every individual age 67 or older, along with the disabled, can be maintained as it is today.

You can spend years studying the problem – and people have – but that hasn’t fixed it.

 

You can contact Emily
Bialkowski at emily.bialkowski@ecm-inc.com.

 
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