Social Security Trust Fund
Posted at 8:54 pm on Monday, January 14, 2008, in Politics, and tagged economics, social security.
I sat through one of the more hilarious unintentionally funny lunch-time seminars at work today. A representative of the Social Security Administration illustrated the Social Security benefit system with the theme, “Social Security: There when you need it.”
The presentation was brief, lasting only forty minutes or so. The first part was relatively beneficial. She discussed how benefits were determined, and went over all of the other aspects of the program, much of which I never knew. I should note that I was pleasantly surprised with the program and its benefits.
The presenter emphasized throughout the seminar how important it was for young people (there were a handful or two in attendance) to understand the benefits. She also stressed that the benefits weren’t meant to make up a person’s entire retirement fund, and that it is critical to plan for retirement by taking advantage of private plans (pensions, 401ks, IRAs, etc.). She did state however that it was wise and prudent to plan for Social Security benefits making up forty percent of a person’s retirement.
But the best part was the closing. With the question on everyone’s mind being “What about the future?” she showed us a series of slides. The first was the fact that the ratio of workers to retirees is becoming smaller (from 5:1 in 1960 to a projected 2:1 in 2030). The second was that Americans are getting older (from 11 million or 9 percent retirees in 1946 to a projected 69 million or 20 percent in 2030). And then the kicker, a plot of the Social Security Trust Fund over time…
Image: Social Security Administration
As the gasps spread around the room, she reassured us that “everything is good until 2041.” Any rational person would conclude from that graph that the trouble does not start in 2041 — when I will be 61, not yet old enough to receive benefits — but around 2025 or so. This is where there is a disconnect. She answered honestly (to her credit) that people in the Social Security Administration are expecting something to happen, that some new law will change the system somewhat, especially before 2041, but that she had no idea what that would be. But it is intellectually dishonest to propagate the myth that young people can count on Social Security when they retire. It is clearly not so.
I would like to predict that this issue will become not only exclusive to retirees, but young people as well. Maybe then, people in Washington will put the issue on the front burner for real. Maybe then, democrats will stop using the issue as a crutch in their campaigns, and republicans will realize that partially privatizing the system will only make matters worse.
Note: I owe it to my readers — and I owe it to myself — to expand on my opinions of Social Security, because I feel that I have something different to offer, unlike both the democrats’ follow-us-blindly approach and the republicans’ partly-partial-privatization approach, what I believe is a realistic working solution. I have danced around the topic, in one way or another, on several occasions, but I hope to blog a bit more at length on that issue soon. That will require some research, however, not to make sure that I am right, only so I don’t make myself look too much like an idiot.
No related posts.
January 16th, 2008 at 1:31 pm
The final sentence of your fifth paragraph is correct provided nothing is done to change the current situation. What the SSA actuaries are predicting is that in 2041, the SSA Trust Funds (both Retirement and Survivors, and Disability) will be paying out more than they take in–running a deficit, in other words. There are various ways to solve that future problem, none of them politically easy–use other government funds to make up the shortfall, raise FICA taxes, remove the earnings cap on FICA taxes, cut back benefits, or a mixture of all. (Note that privatization is not one of them, no matter what the current administration says.) As an longstanding employee of the agency in question and as one who is quite familiar with the problems and solutions, I eagerly await your comments and future analyses.
January 16th, 2008 at 2:25 pm
But the trouble doesn’t start in 2041, but years earlier when the rate of growth goes negative (shown on chart).
January 17th, 2008 at 9:32 am
I don’t mean to parse words here, but we’re both correct. The trust fund itself starts shrinking around 2027, but can still cover all Social Security checks written. It’s in 2041 when the trust funds will be depleted and cannot cover the checks drawn. So, in terms of its solvency, Social Security becomes insolvent in 2041. In terms of its funding, it starts having problems around 2027.
July 27th, 2009 at 4:42 pm
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