As of today, 90% of U.S. retirees rely on the social security system as a major source of income during their retirements (Social Security Administration). However, future retirees are facing a crisis as the collective pool of money has shrunk significantly, leading many to doubt the long-term viability of social security. To explain this trend, it’s important to understand the fundamentals of our current social security system. The social security system works as two dynamic pools of money that every tax paying American contributes to automatically through our current tax system during the course of their professional life. Everytime payment is made for work, 6.2% is automatically allotted to the social security system. This is matched by employers for a total contribution of 12.4%. 80% of these funds are allotted to the Old Age and Survivors trust, which covers retirement, while the rest is allotted to the Disability trust. As someone retires or becomes disabled, they gain access to a specific portion of that money based on how much they have paid throughout their life. This is then paid out in annuities over the course of one’s retirement or until they die. While this is normally a sound system, the influx of retirees from the baby boomer generation has led to a swift depletion in the United States’ available funds. This mass exodus from the job market, combined with an already aging population, has resulted in significantly fewer workers contributing to the benefits of each retiree. Because of this, the Old Age and Retirement trust fund is projected to reach insolvency by 2033, while the Disability trust is projected to become insolvent by 2057. Medicare is also at risk as it is funded by the same pool of funds (Rappeport & Sanger-Katz, 2021).
You may be wondering what this means for the future. In the short term, retirees will be fine. There is ample time to correct this issue and ensure that the social security system lives on. However, it will require both an increase in taxes from income, and a possible reduction in the amount of benefits being paid out. Increasing taxed income would be the simplest solution as it would not raise the tax rate but rather would raise the cap on taxable income for social security. As of right now, income earning persons pay 6.2% of their income up until they make more than $160,000. No one is required to make additional contributions beyond that amount, However, an increase to a $200,000 cap would allow for 20% more revenue for social security to be collected. Of course this has been met with strong opposition on both sides of the issue. Another proposal that has been made is increasing the retirement age in order to delay payouts. The viability of this proposal is hard to determine as it could very well be a bandage over a very serious issue. This also comes with its own set of challenges surrounding working culture as the U.S is already criticized for its emphasis on the collective corporation rather than the individual. With that being said, current members of the work force should remain unconcerned for the time being. Given that congress has over a decade to shore up our current system, I have faith that a more reasonable, less capitalistic solution can be reached.