Will Social Security be there for me when I retire?
I recently printed my statement from Social Security to see my projected benefits after reading comments on Facebook that the fund has been “tapped twice” and there probably won’t be any money for me when I’m ready to retire.
The saying, “You can’t believe everything you read on Facebook” is partially true in this case.
The years 2020 and 2034 seem to be important dates in the life of Social Security. Those are the years the funds may be in question with a projected deficit.
A history of Social Security shows Franklin D. Roosevelt signed the Social Security Act into law Aug. 14, 1935, as a safeguard “against the hazards and vicissitudes of life.”
According to Social Security, “The Social Security Act established two types of provisions for old-age security: (1) federal aid to the states to enable them to provide cash pensions to their needy aged and (2) a system of federal old-age benefits for retired workers. The first measure was designed to provide immediate assistance to destitute aged individuals. The second was a preventive measure intended to reduce the extent of future dependency among the aged and to assure workers that their years of employment entitled them to a life income.”
Roosevelt promised “the money the participants paid would be put into the independent ‘trust fund,’ rather than into the general operating fund and, therefore, would only be used to fund the Social Security retirement program and no other government program.”
Social Security says this is correct; however, subsequent administrations have violated this principle.
According to an article by Linda Qiu with PolitiFact, “For about 50 years, Social Security was a “pay-as-you-go” system, meaning payroll taxes covered that year’s benefit checks.
PolitiFact says in 1982, Ronald Reagan enacted a payroll tax hike to prepare for the impending surge of retiring baby boomers and a surplus began to build.
“By law, the U.S. Treasury is required to take the surplus and, in exchange, issue interest-accruing bonds to the Social Security Trust Funds. The Treasury, meanwhile, uses the cash to fund government expenses, though it has to repay the bonds whenever the Social Security commissioner wants to redeem them,” Qiu said.
“George W. Bush ‘borrowed’ around $708 billion, which is said to have been used on the Iraq War and the financial bailout in 2008,” Qiu said.
“Since all money is green, the cash that the Treasury received from the Social Security surplus was not earmarked for any specific government program,” Andrew Eschtruth, a former Social Security research analyst at the U.S. Government Accountability Office and spokesperson for the Center on Retirement Research at Boston College, said.
“The larger question posed by critics of the trust fund system is if and how the government will provide cash for all the bonds, now totaling $2.8 trillion,” Qiu said. “These bonds are a special class of securities unique to the Social Security fund that can’t be sold. Because they’re not marketable, some contend that they’re ‘worthless IOUs.’”
Social Security benefits were not taxable income until 1983 when Congress changed the law. President Barack Obama promised to eliminate the tax on Social Security benefits while campaigning but was not successful in following through with the promise.
There have been 11 years in which the Social Security program did not take in enough FICA taxes to pay the current year’s benefits. During these years, trust fund bonds in the amount of about $24 billion made up the difference.
The trust funds hold a mix of short-term and long-term government bonds and, therefore, earn interest.
According to Social Security, in 2017, nearly 62 million Americans received approximately $955 billion in Social Security benefits.
Nearly nine out of 10 individuals age 65 and older receive Social Security benefits.
By 2035, the number of Americans 65 and older will increase from approximately 49 million today to over 79 million.
There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.2 covered workers for each beneficiary.
Most of the payroll taxes collected from today’s workers are used to pay benefits to today’s recipients.
In 2016, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $957.5 billion in revenues. Of that amount, 87.3 percent was from payroll tax contributions and reimbursements from the general fund of the Treasury and 3.4 percent was from income taxes on Social Security benefits. Interest earned on the government bonds held by the trust funds provided the remaining 9.2 percent of income. Assets increased in 2016 because total income exceeded expenditures for benefit payments and administrative expenses.
The 2017 trustees report projects that the number of retired workers will grow rapidly, as members of the post-World War II baby boom continue to retire in increasing numbers. The number of retired workers is projected to double in about 50 years. People are also living longer, and the birthrate is low. As a result, the trustees project that the ratio of 2.8 workers paying Social Security taxes to each person collecting benefits in 2016 will fall to 2.1 to 1 in 2036.
In 2010, tax and other noninterest income did not fully cover the program cost, and the 2017 trustees report projects this pattern will continue for at least 75 years if no changes are made. However, the trustees also project that redemption of trust fund assets will be sufficient to allow for full payment of scheduled benefits until 2033.
Back to my situation — my Social Security benefits report gives me three options: If I take benefits at age 62, my payment will be one amount; if I take benefits at 66 and 10 months, my amount will be $649 more; and if I take benefits at age 70, I will receive an additional $1,217 from the benefit projected at age 62.
I began working at the age of 15 and have paid into the Social Security account since then. For many years, I have heard financial experts say older Americans should not count on Social Security alone in their retirement years, and it appears they were right.
A report produced by the Center on Budget and Policy Priorities says, “The trustees estimate that, if policymakers took no further action, Social Security’s combined Old-Age and Survivors Insurance and Disability Insurance trust funds will be exhausted in 2034. After 2034, even if policymakers took no further action, Social Security could still pay three-fourths of scheduled benefits, relying on Social Security taxes as they are collected.
If this fund is not straightened out and there is no money for the older Americans, how will our seniors survive?
Perhaps this situation should be addressed now rather than later.
East Penn Press