Today’s generations are told that Social Security will be next to non-existent when they reach the age of retirement. This means that Social Security could value less, especially if the taxpayer takes a break from contributing. A 2014 survey concluded that more than 50% of respondents believed that they would not receive any benefits in their retired years, with just 6% having confidence in the Social Security Benefit System, who believed they will get the same level of benefits as now.
Too few people really understand why Social Security is expected to collapse, along with its Trust Fund, around 2035. There are many theories to work with. While some say that it’s all a giant scheme that is bound to deplete, others think that the Government borrowed from the Survivor’s Insurance and the Old Age Trust Funds without paying it back.
However, that’s not how Social Security works. The reality is that Social Security was always a pay along endeavor, which makes it look similar to a pyramid scheme. The Trust Fund has been put in special US Gov bonds which have to pay a certain amount of interest and repay the entire amount when they reach maturity. If the money just sat in a bank, its value would fall under inflation.
There is a simpler explanation for Social Security being in trouble. There are much more retirees than America has ever seen, and they have to be supported by the number of workers who pay Social Security.
In 1940, there were only 1.1 million beneficiaries of Social Security supported by 46.4 million workers who were paying for this system. That used to be 42 workers per every retiree, Since then, a major shift has happened: the baby boomers, born around 1946, have reached their retirement age of 62 and started to take advantage of their Social benefits.
By 2034, when the last boomers are expected to retire, there will be a proportion of two workers who support every retiree. It will lead to one-third of the funding to evaporate. There are three main options left to save Social Security:
- Taxes have to be raised in order to meet the shortfall of the 2030s.
- Benefits have to be cut to reflect the current level of Social Security sustainability.
- A combination of the above.
The only good suggestion for those who are now working is to save up and invest because no one knows when the Social Security System is going to collapse. The quicker you start, the better the outcome it will be for your future. Right now, Social Security is starting to value less.
Image Source –Wikipedia