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Posts Tagged ‘Social Security Act of 1935’

Is Social Security Going Broke?

Wed ,04/08/2010

Is Social Security Going Broke? No. According to the actuaries at the Social Security Administration, the bottom line is that Social Security (SS) is financially as sound as the U.S. government. (1) The surplus in the SS trust fund today stands at  $2.4 trillion and is entirely invested in Treasury bonds which earn interest. The trust fund will peak in 2027 at nearly $6 trillion and there will be sufficient money in SS to pay 100 percent of benefits until 2041. A few small changes now could extend the trust fund until 2083. The Treasury bonds are backed by the full faith of the US government and SS would only go broke if the U.S. government went bankrupt.

Why Do Many Believe Social Security Is Going Broke? It is because many politicians and financial advisers are telling them so. The claim that SS was going broke was part of the PR created to try to justify privatizing SS. Privatization would have been a boon to the financial services industry and money poured in for promotion and campaign donations. Privatization eventually failed, but the idea that SS was going broke has lived on. The theme that “SS is going broke” has now become a talking point used by unscrupulous politicians to blame political opponents, inspire fear, convince voters that the government isn’t working, or to justify changes to the system to benefit friends and donors. The theme is also a useful marketing tool for retirement funds who wish to convince potential customers that no matter how much money they have saved, they will eventually run out – unless they invest with them. Of course, a solvent SS ruins that argument.

Won’t the Baby Boomers Use SS Up? No. There was a hike in the Social Security payroll tax in the 1980s so that baby boomers would pay a bigger share of their own retirement. That hike created a surplus to handle the crunch of baby-boomer retirements and the surplus went into the SS trust fund. The trust fund is projected to grow steadily until 2027 and after that, it is estimated that SS funds will be sufficient to pay 100 percent of benefits until 2041. After that, payroll tax revenue alone will be sufficient to meet 78 percent of the program’s obligations – even if no changes are made.

Should Changes Be Made? The SS trust fund could be extended by either increasing the retirement age, reducing  benefits, increasing the payroll tax, or raising the cap on earnings.(2) The latter might be the fairest and most popular. Earnings above $106,000 a year are now exempt from SS taxes. As the inequality in earnings between top and average wage earners has grown over the years, the cap has exempted a larger share of top wages from taxes – and thereby reduced SS collections. An analysis by the Congressional Budget Office shows that if the cap were lifted, the Social Security trust fund could be extended through 2083. A poll conducted for USA Today by Gallup shows that 67% of Americans would support lifting the cap. (3)

Social Security was created by the Social Security Act of 1935 in the midst of the Great Depression to provide for retired workers who had lost their life savings. It did that, and since has become one of the most relied on government programs. Many economists think future retirees may be even more dependent on Social Security because of the disappearance of traditional pensions. Social Security provides a safety net so that no matter how fortunate or unfortunate Americans are in their lives and choices, they will not be destitute when they retire. A few thoughtful changes now will insure that SS will be around when those who are now babies reach retirement age.

1) http://www.ohio.com/news/american_dream/27325314.html

2) http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf

3) http://www.dailykos.com/storyonly/2010/8/2/889034/-Proof-that-the-Social-Security-problem-is-easy-to-fix