This should come as no surprise to anyone. Each administration since 1992 has kicked this can down the road and done nothing to prolong the longevity of this program. A good number of financial service companies have given many good presentations on how to fix this, such as doing away with the maximum SS tax limit, raising the retirement age and raising the percentage of withholding from 6.2% (each for employers and employees) to 7.5%. The fact is that people are living longer for the most part and there are fewer workers supporting those retiring and collecting their benefits.
Information presented below is from the 2001 Annual Report of the board of Trustees of the Federal Old-Age and Survivors Insurance Trust Funds and NCPA calculations:
In 2000, Social Security provided survivors benefits for 38.5 million people and disability for 6.6 million. Meanwhile, 152.9 million workers contributed to the program.
Social Security is a pay-as-you-go program, which means the government writes checks to today's beneficiaries using payroll taxes collected from today's workers.
When Social Security began in 1935, the payroll tax on workers' salaries to support the program was 1% on the first 3,000 of income. Today, Social Security is financed by a 12.4 percent payroll tax - half by the employee and half by the employer - on the first $176,100 in 2025.
Social Security is in Trouble
The number of Social Security beneficiaries is growing faster than the number of workers paying taxes to support them - the number of elderly between now and 2050 will increase 100% while the number of will workers will only increase by 22%.
People are living longer and collecting more Social Security benefit checks. In 1940, life expectancy was 61.4 for men and 65.7 for women. By 2000, life expectancy was 73.8 for men and 79.5 for women; by 2050, life expectancy will be 79 for men and 83.3 for women.
People are having fewer children. For each generation to be the same size and the one before (the replacement rate), women must have 2.1 children. In 1940, the fertility rate was 2.23. Today, the rate is 2.07 and by 2050 it is expected to trend downward to 1.95.
The result has been dramatic. In 1940, there were 42 workers per retiree. Today the ratio is 3-to-1; by 2050 it will be 2-to-1. The burden on each individual worker will increase substantially and we will no longer be able to keep out promises to retirees at current payroll tax levels.
By 2016 Social Security will spend more in benefits than it collects in taxes. By 2040 the program will have spent all the assets credited to the trust fund - taxes will have to rise by half or benefits cut by a third.
Bottom line, the program IS in trouble, but it’s just circling the drain at this point. It’s still fixable, but Congress needs to institute several measures to fix this before it’s too late.
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