Social Security is the proverbial third-rail of politics: it is an issue that evokes such passions that it is considered untouchable.
Unfortunately, that mentality, among several factors, has put the Social Security system in a potentially precarious situation. As the Baby Boomer generation enters their retirement years, the ratio of workers paying into Social Security and those collecting Social Security benefits has fallen precipitously. According to data from the Social Security Administration, in 1940 the ratio of covered workers to Social Security beneficiaries was 159.4. By 1960 that ratio had fallen to 5.1. Throughout the 1990s and much of the 2000s, the ratio hovered between 3.3 and 3.4 before falling below 3.0 in 2010. Some project the ratio to fall to 2.3 by 2030.
Based on the Social Security Administration’s 2015 report, the trust is on track to be depleted in 2034, at which point the system will be able to pay 79% of benefits from ongoing tax revenue. That projection is expected to shrink to 73% by 2089. The Congressional Budget Office estimated that the shortfall could come as early as 2025.
So although there are some shrill warnings about Social Security, it is going to be around for quite some time. In addition, as long as people are paying taxes, it seems that Social Security will continue paying some level of benefits.
AAII Weekly Survey Question
To see how worried our readers are about the long-term solvency of Social Security, we asked our members last week:
How concerned are you about the viability of the Social Security system?
In addition, we added an additional dimension, asking respondents how old they are.
Here are the results:
In all, 2,493 participated.
Since our readers tend to skew older, it is not surprising that the vast majority of respondents are over the age of 50 (97.6%).
Interestingly, when looking at the four age groups, worry about the viability of the Social Security system falls as people age. Perhaps that is because they are closer to collecting their benefits, or already are, or they are in a better position financially such that they will not have to rely on Social Security in retirement.
Nearly 55% of those aged 18–29 worry a great deal about the viability of Social Security. This falls to 44.9% for those aged 30–49; 23.3% for those in the 50–64 age group; and only 18.7% for those 65 and older.
That’s not to say that individuals don’t have some level of worry about the long-term viability of Social Security. For those age 30–49, only 10.2% are not worried at all about the viability of Social Security. Nearly 7% of those in the 50–64 age group are not worried at all, while 11.7% of those 65 and older have no worries about the viability of the Social Security system.
Weekly Special Question
Last week’s special question looked for potential solutions to Social Security insolvency. So we asked our readers:
If you were commissioner of the Social Security Administration, what steps would you take to improve Social Security’s solvency and long-term sustainability?
Given the level of interest in this topic, it’s not surprising that we received 871 suggestions regarding how to “fix” Social Security.
The single most-suggested solution for improving the solvency and long-term sustainability of Social Security was increasing the retirement age at 24.9%.
Roughly one-fifth of respondents said that there should be a means-test for Social Security as well as better policing of those receiving benefits.
The third-most-popular suggestion for boosting Social Security’s sustainability was to tax all income for Social Security, thereby removing the current cap at 15.2%.
Nearly 8% of readers feel that having a true “Social Security lockbox” will ensure its solvency. As such, they believe that Social Security funds should not be used for anything except paying out benefits.
Rounding out the top five responses, almost 5% of readers suggested investing Social Security funds in the stock market or other instruments besides solely investing in U.S. Treasuries.
Here is a sampling of the responses readers offered regarding the advantages and disadvantages of trading on margin:
- “Incentivize delaying signing up until after the age of 70.”
- “Lift the annual cap on payroll taxes paid into the Social Security system so that all earned wages would be taxed.”
- “Raise the age to collect benefits.”
- “Scrutinize the disability payments to reduce/eliminate fraud.”
- “Abolish social security for those under 40 and set up individual retirement accounts which people are required to fund with an equivalent amount to their FICA payroll deduction and which employers can contribute instead of paying into the government fund. Provide a transition plan to migrate those 40 and over to individual retirement accounts.”
- “Allow more immigration in order to sustain the Social Security system.”
- “If I was in charge of Social Security I would tell people that payments should only cover their bare living expenses. Social Security should not cover a person’s full retirement.”
- “This is not a problem the Social Security can solve. The problem must be solved by Congress. Congress must stop spending the excess Social Security contributions. They currently use social security taxes to fund the general government expenditures, rather than investing the funds for future social security benefits.”
Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.