The approaching insolvency of Social Security dwarves the problems
of Medicare and other issues facing both America's lawmakers and
its senior citizens. And it looms just over the horizon. If not
addressed soon, it will devastate society.
Public concern is well grounded; studies and official reports confirm
that Social Security cannot be sustained in its current form and,
even if its revenue and expenditures were in long-term balance,
it is providing poorer and poorer retirement income security for
the money contributed by today's workers.
The problem is one of numbers:
In 1965, Americans aged at least 65 numbered 9 percent of the population;
in 1995 they were 13 percent; and by 2030 their share will supposedly
rise to 20 percent - nearly 70 million citizens of retirement age.
When Congress proposed creating "social insurance" in
1934, it was designed to operate as a pay-as-you-go system. That
means no money is actually set aside by the government to pay benefits
in the future. When workers paid taxes into the Social Security
"trust fund," most of the money was immediately paid out
as benefits to current retirees. The leftovers went to the Treasury
in exchange for federal IOUs to finance the national budget.
And that worked fine because those working and paying into the system
more than offset the aging population. But that is rapidly changing.
Whereas in 1995 there were roughly five people of working age for
every retired person, in 2030 there will be only three. Currently
one in seven Americans receives a Social Security benefit. In addition,
90 percent of all workers are in jobs now covered by Social Security.
True, the system has a cushion and this will grow over the next
decade. Unfortunately, however, the system's cushion will lose its
stuffing by 2013. When baby boomers start retiring, the cash flowing
into the system from payroll taxes will no longer match the benefits
being paid out. By 2021 interest from the Trust Fund will no longer
make up the shortfall, and by 2032 the fund will be exhausted.
All these factors have combined to push the current Social Security
system toward bankruptcy.
Current estimates calculate that, without reform,
the government will be unable to pay promised benefits until around
2037. Because no money has actually been saved to float the system,
Congress will be forced to significantly increase public debt, reduce
spending or raise taxes. One other option will be to drastically
cut benefits - as much as 25 percent if no action is taken to insure
the funds are there.
The problem should not be underestimated. The government will owe
an estimated total of about $9 trillion more to current workers
when they retire than it will have collected from them in taxes.
This Social Security liability is more than twice the official national
debt. It is larger than the total value of the United States gross
domestic product.
Politically fair and financially sound remedies must be found that
keep the promises made to today's seniors without bankrupting other
generations. Without careful, comprehensive change soon, at least
one generation of workers will be left stranded without benefits.
This was not the promise made to the people and its breach will
have dire consequences for the social fabric of the nation.