Social Security, the federal government’s largest benefit program, reached its 80th anniversary in 2015. In the last few years, Social Security has been facing some major issues; most notably, the program is facing a financial drought. The problem is complex and multifaceted, and there are several possible steps to remedy the shrinking coffers.
Social Security: An Overview
Social Security was created in 1935 as a financial relief system to the millions of people facing poverty during the Great Depression. Many people now associate Social Security with aging retirees. While that is correct—a large part of the money collected by Social Security does provide monthly payments to retired Americans—Social Security also covers more than that. Social Security also provides pay to disabled or deceased workers and their families. Social Security benefits increase annually, to match the increases in consumer prices (called a cost-of-living adjustment). Currently, about 58 million people benefit from Social Security.
Baby boomer buzz
It is nearly impossible to talk about Social Security without mentioning the baby boomers—the generation of Americans born post-World War II and are now reaching retirement age. While the baby boomer generation was massive, they themselves did not continue the birthing trend, meaning that the amount of working, taxpaying people is not large enough to cover the 76 million baby boomers who are retired or heading towards retirement. These great demographic shift is one of the most important factors contributing to the financial gap in the Social Security funds.
Social Security Funds Now
While the retirement fund of Social Security currently has enough money to pay full benefits, the trust is projected to run out of surplus funds in 2033 and will be unable to pay full benefits. The disability fund is in even more dire shape, and is projected to run out of surplus funds this year. There are two ways to increase the flow of money into the Social Security funds: benefit cuts or tax increases (or a mix of both). Since neither of these options are wholly supported by the general population, the federal government has faced many roadblocks in reforming Social Security. In July, over 70 members of Congress signed a letter to President Obama calling for enhanced benefits; the chairman of the Senate Finance Committee, Senator Orrin Hatch, pointed out that the country is already in debt and this would just worsen the problem.
So, will Social Security funds still exist for those still in the workforce? While the circumstances seem dire, the short answer is yes. However, full benefits could be a thing of the past once the funds run out. The retirement fund has enough money to stay solvent for another 18 years; after that point, Social Security is projected to pay about 72% of total benefits through 2087. The disability fund, however, is expected to cut benefits by 20% this year unless reforms are passed.
Looking Ahead
The future of Social Security seems murky, and disagreements between Republicans and Democrats are not helping the issue. Democrats, in general, advocate expanding Social Security benefits, while Republicans encourage reducing them until the program reaches solvency. This will undoubtedly be a hotly debated topic over the next year, in the presidential race and beyond. While it’s uncertain how to remedy the financial problems of Social Security funds, it’s clear that this will affect every household in America.