So you’ve gotten your first job, and you’re making money on your own – an exciting experience that millions of teenagers are experiencing. After the thrill of your first paycheck, you begin to notice that on every check you receive, there is a portion withheld for various taxes (or at the very least, notice that you are not receiving every dollar that you earn). We all know about income taxes on the Federal and State level, and even about Medicare. There is one deduction however, that might not be so familiar. Social Security. What exactly is that?
Well, the idea of Social Security, or helping those that are unable to work due to age or disability, has been around much, much longer than the Social security program. Ideas such as this can be seen as far back as in Ancient Greece, where older members of the society were provided for by the younger. As a concept, this only makes sense and is a wonderful thing for a civilization. However, the emergence of Social Security brought about a program that has molded and morphed into something that all young people should know about.
In 1935, the Social Security Act was passed. Franklin Roosevelt was the president at this time, and the program itself was actually developed by FDR. Since we were in a depression, there were many older citizens who now had no way of supporting themselves, because they had lost their jobs and because of their age would never really be able to get hired again. The program would have some kinks in the beginning in getting things moving, but what was intended to happen was that pay would be withheld from your wages, and then given back to you at an age when you retired (at or above 60 years of age, when the program fist appeared). Because the system had not been paid into, it would take until 1945 for the first real payments to begin.
Now, let’s take a moment to reflect on what this meant. This new Social Security program was basically a government – controlled retirement program for those that were not able to provide for themselves. Wow! That’s a really great thing to do, wouldn’t you say? This program worked well for quite a time, but since 1935 has become an expected means of living for senior citizens. The common assumption is that “Once I reach 65 years of age I can retire and start collecting a monthly check”. The problem with this is that this is stressing out the system. With the aging of America (the generation of “Baby – Boomers” who will all be retiring at about the same time) the system cannot support itself. Something important to note is that that time is right NOW. This is 2008, and the first wave of “Baby - Boomers” is now retiring. Even better, the amount of benefits for these citizens is set to increase dramatically.
You’re probably thinking “Why should I care about this? I have 50 or 60 years until I have to start thinking about retiring. Big whoop?” The problem is this: it is projected that in only 9 years (2017) Social Security will be paying out more money than is being put in by wage-earning folks just like you. By the time you have retired, there will only be 2 workers paying in for every social security recipient.
“Wait! How can that be?!” you might ask? Simple: Social Security has always been a Pay-As-You-Go system, where you will pay money into it from every pay check as long as you are working until the day you are old enough to retire and start collecting from it. For a long time, much more money has been going into the system than is needed to support the number of retired citizens collecting Social Security Checks. In fact, the proportion of workers to retired citizens in 1950 was 16 to 1. Today, there are only 3.3 workers paying for every recipient of the Social Security checks, and this number will continue to decrease as the number of retiring citizens continues to outweigh that of people still working.
Another major problem is that the government took this money – rather than saving it in say, the Trust Fund, or a similar ‘hands-off’ location – and spent it on whatever they deemed necessary. I am not typically one to criticize our government, but there is a serious problem here. In order to keep the system alive, the government will have to collect more and more exorbitant amounts of money from some currently unknown source. By the year 2027, the government will need to somehow collect an extra $200 BILLION dollars a year, just to keep the system’s head above water. Only six years later in 2033, an extra $300 Billion will be required! A number of government authorities verify that by 2041, when workers that are now in their twenties begin to retire, the system will be completely bankrupt.
A number of alternatives have been brought to the attention of our government, and all will be reviewed except those that suggest raising payroll taxes. That simply cannot be done because a deduction of pay that large across the country could put families everywhere out of their homes or into poverty. Many positive ideas have come forth such as limiting benefits for retirees who are wealthy or otherwise not dependent; increasing the retirement age; or changing the formula on receiving benefits so that senior citizens have less or no motivation to retire and begin collecting early.
The reform of Social Security will undoubtedly be difficult, but is a serious issue that continues to worsen as we wait. Any of the ideas that have been brought up will be good for a start to the end of this problem. However, what will need to happen is a dramatic shift in the role that Social Security plays in the future of today’s workers. It will not be able to act as the same system that it did for our grandparents. My suggestion is that retired citizens basically become weaned off of the program to the extent of Social Security not being distributed except to those seniors that have no other means of income. This will not only promote saving for the future in younger generations, but will stop distributing money to retired citizens who are already living off of their retirement funds, and other money that they have saved, as if they were dependent on the check. They should still receive money, because they have been good citizens and done their part, as well as saved for the future, but that doesn’t mean that they should get nothing and that someone who has not saved at all should get a free ride. Of course, this cannot simply happen over-night, and the government will need to be sensitive to the people who have already paid into the system. The most difficult part of the fix to this system will be how long it takes. Our generation will be the first to be significantly affected by the results of this dying program. I have made clear the problems in store for us if we do not start taking action. I for one would like to see my money come back to me, or at least go somewhere that I can someday have access to it – what about you?
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Today, there are only 3.3 workers paying for every recipient of the Social Security checks, and this number will continue to decrease as the number of retiring citizens continues to outweigh that of people still working.
Don't get overly hung up on these ratios because not all workers are equal. There is a huge difference between the contribution of an unskilled worker to social security and a highly skilled worker who earns somewhere around $100,000 which is the cut-off for Social Security taxes. The high-skilled worker contributes about 5 times as much. The quantity of workers is not nearly as important as the quality.
In coming years, you all (young people) are going to hear a lot of calls to flood the American labor market with low skilled immigrants. One of the ways this will be justified is the ratio of workers to retirees.
Don't be fooled. Unskilled workers are no substitute for high skilled workers that earn a lot and pay lots in taxes. An unskilled worker will contribute a little to Social Security in payroll taxes. And then they will qualify for the Earned Income Tax Credit and foodstamps and other social programs and they will end up taking more out of the treasury then they put in. Because these people take more out of the treasury than they contribute, adding this kind of worker will only speed the demise of Social Security and place even higher demands on the real taxpayers.
Don't be fooled. Do the math!
Is that only the first 90-100,000 dollars are covered under the current social security tax. By raising the retirement age by a couple years and the cap on taxed income the program could achieve long-term viability. The problem is that both solutions are not politically feasible.
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Thank you for your feedback, but I'm afraid you are getting a bit side-tracked here. No where do I reference the skill-level of workers OR illegal immigration. I am asking about what reform needs to take place in regards to social security.
But you did make repeated reference to the ratio or workers to retirees. To read your post one would think that this ratio is an important measure of the health of the system.
My post corrected that cannard.
The quality of workers is a lot more important than the quantity. If we drive up the ratio by importing unskilled workers who take more out of the treasury than they put in, it will speed the collapse of the ponzi scheme.
Social security was never meant to be the sole source of income after retirement as you are positing. Social security was meant to supplement pensions-- but most people don't get that anymore. Furthermore, most working people have 401k plans to save for retirement. So again, Social Security is not expected to be the only income for a retiree.
Thank you for pointing this out, because it is very true. However, I have already stated this in my article:
This program worked well for quite a time, but since 1935 has become an expected means of living for senior citizens. The common assumption is that “Once I reach 65 years of age I can retire and start collecting a monthly check”. The problem with this is that this is stressing out the system. With the aging of America (the generation of “Baby – Boomers” who will all be retiring at about the same time) the system cannot support itself.
What do you think that we should do about the system overall?
"but since 1935 has become an expected means of living for senior citizens."
You made it sound as though it's the only thing seniors are relying on in that quote. I think it's more accurate to say that since pensions became a thing of the past, circa 1990s, Social Security has been the sole source of income.
But anyway, I think the cap on those who make $97,000 a year needs to be lifted and extended in order to fix it.
That sounds good! Thank you for your ideas!