For those of you outside the U.S. or who don’t know, Social security was founded by President Franklin D. Roosevelt in 1935. It has undergone some changes since then, but is essentially a government assistance program to provide retirement, disability, and survivor benefits to beneficiaries funded by U.S. tax dollars.
The Social Security Statement
We just received Linda’s Social Security Statement containing her earnings record and estimated benefits. Within the envelope they included a pamphlet titled “What young workers should know about Social Security and saving.” I am not planning on Social Security being around when I reach retirement age, because you can only go so long spending $2 when you are only making $1. With all the Baby Boomers retiring, there is just going to be a lot more money going out than what is being contributed. You hear concerns about this all the time, but I was interested to find out what the Social Security Administration had to say about the future of the program.
From the Pamphlet…
Will Social Security still be around when I retire?
Yes. The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries. The Social Security Board of Trustees now estimates that based on current law… In 2017 (it) will begin paying more benefits than it collects in taxes and… in 2041, the Trust Funds will be depleted (emphasis added). Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.
… Even if modifications to the program are not made, there would still be enough funds in 2041 from taxes paid by workers to pay about $780 for every $1000 in benefits scheduled.
While I am pleased that the government is being honest about challenges ahead for the Social Security program, I think their estimates are very conservative – if not wishful thinking. The way healthcare technology is advancing we will probably be able to keep everyone alive to 100+ in a couple decades – whether they like it or not! I would be surprised to an increase in our birth rate, and I think seeing a continuing decrease is much more likely. So with both ends extending out, we will likely have a much larger disparity of cash inflows vs. outflows than we do today.
But knowing our government, they will try to find a way to make it work. They are going to have to pay the piper eventually, but no one seems to know when that day will come. Assuming they can always find more money to borrow (a dangerous assumption IMO) things will work out fine and we will all get our Social Security checks each month.
Depending on Social Security for retirement
If you can’t tell, I do not want to be in a position where I have to depend on the government to be able to retire. When ever people ask me about it, I always tell them the same thing – Plan for your retirement like Social Security will not exist. If it is still around, then you will have a nice little bonus. But a lot can change in a decade or two and in the case of Social Security, I don’t think it will be in their benefit.