Benefits - Social Security - Is It Designed To Support Us For 20 Plus Years?

The Social Security system in the U.S. is a major source of retirement income for many. Thus Social Security is a logical place to start answering the question: Can we afford to continue this trend of retiring ever earlier and living longer?

The graph presents projected income and expense for the Social Security fund from 2000 to 2050. These projections are made by the Social Security Administration. The figures for both income-tax revenues and benefits paid out are presented as a percentage of Gross Domestic Product. The picture is sobering. It highlights the coming deficits in a system on which so many Americans depend for at least a part of their livelihood during retirement.

The gap between revenue and expense arises because of demographic shifts. The aging of the Baby Boom and life-extending medical advances combine to create an imbalance in the Social Security system as designed.

The system was established in 1935 and was intended as an insurance policy against a poverty-ridden old age, a not uncommon fate for the elderly during the first decades of the 20th century. Those in the workforce pay into a fund; upon retirement, they receive a small income from the fund.

In the 1930s, life expectancy in the U.S. was 59.7 years; many people never reached the age of retirement. In 2001, life expectancy was 77.6 years; most people today live for quite a while on Golden Pond. We're living longer and drawing from the Social Security fund for more years with each passing generation. The declining age of retirement only exacerbates this trend.

In simple terms, if the number of those paying into the fund drops as the number of those drawing from it rises, an imbalance is sure to develop in the future.⁴ As we saw in the last panel, just such a shift is coming.

Barring any restructuring of the system beforehand, Social Security expenses will exceed revenues in the year 2015. At that point the system will begin to use reserves to meet its obligations. According to Social Security Administration estimates, these reserves will carry the system through the mid-2030s. At that point, if not sooner, one of two things will need to be done: (1) the Social Security tax rate will need to be increased, or (2) benefits paid out will need to be reduced. The second solution may involve extending the retirement age to 70 or an even older age. Since none of these options is politically palatable (the elderly have the highest voting rate), it remains to be seen which will be implemented — most likely some combination of the two.

Since three out of every 10 Americans aged 65 or older depend on Social Security payments for 90% or more of their income (and 3 out of 5 depend on Social Security for 50% or more of their income) we must ask an important question: Are those of us now in our 30s and 40s planning on an alternative or supplemental retirement income? The next panels will address this question.

Source: Social Security Administration. The 2000 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. March 30, 2000. Online. Available: http://www.ssa.gov/OACT/TR/TR00/Ir3C1-2.html. For data on the dependence of persons 65 years and older on Social Security payments: U.S. Bureau of the Census. Current Population Survey.. March 2000 Income Supplement. Reproduced in Social Security Bulletin, Annual Statistics Supplement 2000.