Retirement security and protection against the risks of disability and premature death are among the most important challenges families face when they contemplate their financial goals and objectives.
Americans have developed a structure of social insurance, called the Social Security system, to help provide a foundation for success in these areas. However, in recent times, many people have become concerned that this system may not continue to operate effectively; that it is in crisis or perhaps even approaching bankruptcy. An objective view shows that this is a distortion of the situation put forward by individuals with an agenda and promoted through their mouthpieces in the press and in Congress. Rather than maintaining and improving the structure that is in place, their goal is to take it apart piece by piece.
To get a sense of the extent and depth of the benefits that workers and their families derive from the system, consider that:
- Currently, 52 million Americans – one out of every six – receive retirement, survivors and disability benefits from Social Security.
- 65% of seniors receive 50% or more of their income from Social Security.
- A 30-year-old worker with a spouse and two children earning $32,000/year has the equivalent of $465,000 of disability insurance and $476,000 of life insurance coverage through Social Security.
- 4.4 million children are receiving benefits.
- Only about 10% of American seniors live in poverty, while without Social Security it would be 44% for men and 48% for women.
The structure has been built over the years on a bipartisan basis. To summarize the major steps that have been taken:
Year Administration Program
1935 FDR Retiree system
1939 FDR Survivor benefits
1956 Eisenhower Disability insurance
1972 Nixon Cost of Living increase formula
1983 Reagan Adjustments to regulations
For over 80 years, all benefits have been paid in full and on time. Efficiently administered, with less than 1% of program costs going towards administration, the system is transparent and reliable.
The system is funded through payments from almost 90% of American workers, of 6.2% of wages each from employees and employers, plus 12.4% from self-employed individuals, up to a maximum annual income level of $128,700 (in 2018). The trustees of the system issue an annual report which looks forward 75 years at the system’s finances. Contrary to the impression you may have received from the media, the latest trustees’ report states that, under current assumptions, full benefits will continue through 2034, after which benefits could continue at 75% of the current rate until at least 2090.
Benefits represent 5.1% of GDP, and are forecast to increase to a high of 6.2% by 2037. The Social Security trust fund has an accumulated surplus of $2.6 trillion, which is invested in interest-bearing United States Treasury bonds, regarded as the safest investments in the world. Not one penny of the Federal government’s deficit or debt (the net total of annual deficits) comes from the payment of Social Security benefits. In fact, by law, Social Security funds are separate from the government’s general revenues.
When Congress debates about whether to raise the Federal debt ceiling, Social Security need not be included in that discussion. While the government has pressing issues to deal with relating to jobs, taxes, and infrastructure, Social Security’s future financing can be addressed in a common sense manner over the next few years without rushing into any drastic changes. Elements of a long-term solution may include:
- Modifying some aspects of the benefit formula
- Increasing the maximum annual wage level subject to taxation
- Modest increases in the payroll tax
Proposals that involve full or partial privatization of the system would only increase the risk and costs of the system. Other proposals would maintain the tax rate but reduce benefits so that revenue surpluses could be used for general government programs.
Receiving benefits from our Social Security system is the reward of hard work and represents the values of caring for our parents, children, and neighbors. We pay into the system while we work, and receive our money back when we don’t. The system has been built by generations of Americans to be an important foundation of their financial well-being. As a comparison, should we maintain the Interstate highway system, or dismantle it? The same answer applies to Social Security.