The Future of Social Security

The Future of Social Security

The Future of Social Security

Social security is a government program that withholds money from workers' paychecks and uses it to help retired individuals pay their living expenses. Whether or not it will continue how it might continue, however, is another story. In fact, the debate continues to grow over the stability of the Social Security system and for good reason as our population continues to age, it becomes clear that changes need to be made if the system is to survive.

Why it is in Trouble?

Social Security is a pay-as-you-go system. That means you have no "Social Security Trust Fund" account holding the money you have contributed throughout your working career. Money paid into the system is often used by politicians to pay for other government programs that require current funding. In addition, the workers of today are paying the Social Security benefits of current retirees. With the baby boom of the mid-century and medical advancements that have extended life expectancies, older individuals are a larger portion of the population. As the retiree population grows, the ratio of retirees to workers changes. In 1950 there were sixteen workers contributing to Social Security for every one person collecting benefits. Today the ratio is much smaller. There are now about three workers for every beneficiary. The worker to recipient ratio is expected to continue to decline as more baby boomers move into retirement. With the current system, in forty years a seventy year old retiree could be receiving 27 percent less than a current recipient. With inflation, this will make Social Security a very shaky support net for those who need it.

Changes that May Occur

In the Social Security debate there are four common schools of thought on funding this program now and in the future. Some believe your payroll taxes should be increased while others believe general taxes should be increased to help pay current benefits.

Another option is cutting current benefits to allow more money to be saved for the future. This option is very unpopular among many who feel Social Security benefits are already quite low for poverty stricken elderly with no other income.

A more realistic option is to extend the retirement age when these benefits start to pay. This is in line with longer life expectancy than when the program was commenced nearly 75 years ago.

A final option that has received a great deal of press is voluntary personal savings accounts. Every worker would have their own account that they paid into and then collected from in the future. This option focuses on prefunding Social Security and moving away from the pay-as-you-go method.

What You Can Do

No matter which path you think Social Security should take in the future, don't forget to make other plans for your retirement savings. Social Security should never be the only income you have when you retire. It is only intended as a safety net. To fund your retirement you should have a work related pension and/or a company retirement program such as a 401k plan as well as a personal savings program where you save at least 10% of everything you earn.

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