Can you believe it’s been 90 years! August 14th marked the 90th anniversary of Social Security. Social Security has provided financial support to retirees since 1935. It was signed into law by President Franklin D. Roosevelt in the depths of The Great Depression. Roosevelt saw Social Security as a tool for relief and as a foundation for recovery and long-term resilience.
Over the decades, Social Security has evolved to meet the changing needs of the country. What began as a retirement program expanded to include survivor, family, and disability benefits. It became a lifeline for millions of widows, children who lost a parent, and workers with disabilities. Through war, recession, demographic shifts, and economic change, Social Security has endured.
Social Security is no longer a footnote in the nation’s financial statements; it has become the most prominent line item. Social Security has grown from a scant 2% of GDP in 1950 to 22% in 20251. In fact, transfer payments make up about 60% of the federal government’s spending.
Countless articles have raised concerns about Social Security’s funding. For those in retirement, will you continue to receive benefits? For those nearing retirement, will you see reduced benefits? For those in their early and mid-working years, will you even receive the benefits you are paying into? These are all good questions. Unfortunately, no one has the answers. Only Washington elected officials can shore up this long-time American tradition.
Social Security’s most recent annual report indicated the Social Security Trust Fund, the pool of cash to draw upon, is projected to run out in 2034. These projections consider current funding and withdrawal rates overlayed on actuarial demographics. If Congress fails to act to reinforce Social Security, benefits would drop to what it brings in via payroll taxes. In other words, the Social Security Administration (SSA) would be limited to paying out what it receives, as the cash pool would be empty. SSA estimates that it would be about 80% of one’s current or projected benefits.
To shore up the trust fund, Congress will need to make some serious decisions. There are only a few options: tax more and/or reduce benefits. Tax more comes via raising payroll tax rates or raising the payroll tax limit (payroll taxes only apply to the first $176,100 of earnings). Reduced benefits can come by lowering dollars paid to recipients and/or raising the benefits age for future generations. The early 1980s fix mostly raised taxes and slightly reduced benefits by extending the retirement age.
There isn’t an easy answer. Older generations have paid into the trust fund and feel they deserve some return of (not necessarily a return on) their capital outlay. At the same time, younger generations are disenchanted, thinking they are supporting someone else with nothing left for themselves. The longer Washington politicians kick the can, the more challenging the solution is. This is not a matter for next month or next year, but rather something we need to pay attention to.
Recent Comments