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Social Security may have paid benefits to retirees for more than 78 years, but there's little denying that the nation's most important social program is in trouble.
Each year, the Social Security Board of Trustees releases an annual report that examines the short-term (10-year) and long-term (75-year) outlook for the program. In the latest edition of early June, the Trustees projected that, for the first time since 1982, would spend collected income. Although we're only talking about $ 1.7 trillion in net cash outflow, which is hardly noticeable next to $ 2.89 trillion in asset reserves, it's the meaning of this event that's concerning.
Casino chips and dice lying atop two Social Security cards.
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By 2020, this net cash outflow is expected to really begin to ramp up. In 2027, an estimated $ 169 billion more will be collected according to the intermediate-cost model. And by 2034, all $ 2.89 trillion in asset reserves is estimated to be gone. Though this (thankfully) does not mean bankruptcy for Social Security, it could lead to an across-the-board cut in benefits to up to 21% to 2092 without the need for any further cuts.
<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The boomers are not blame for Social Security's problems"data-reactid =" 35 ">The boomers are not blame for Social Security's problems
You might be asking, "Who's going to blame for this mess?" In many instances, it's the poor baby boomers who get thrust to the top of the blame game, through no fault of their own, might I add.
Boomers, who are defined as being born in the late 1940s, 1950s, and early 1960s, are in the process of social security benefits and thus, leaving the labor force. Since they are fertility rates, the worker-to-beneficiary ratio is expected to decline from 2.8 to 1 in 2018 to 2.2 to 1 by 2035. Or in plainer English, there are not enough new workers entering the labor force for the ballooning of retired beneficiaries.
However, we can not blame boomers for simply being born when they were. Instead, let's place the blame for Social Security's mess on the following half-dozen factors.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "1. Increased longevity"data-reactid =" 60 ">1. Increased longevity
One of the biggest issues with Social Security has been increased since the mid-1930s. When payouts began in January 1940, the average man and woman were living to about 61 years and 65 years, respectively. As of 2016, the average life expectancy in the U.S. had catapulted to 78.6 years.
Meanwhile, Social Security 's full retirement age – the age at which you become eligible for your retirement age – determined by age 65 to what will be a cap of age 67 by 2022 since inception. That's right, folks. While the average life expectancy has been reduced to at least 15 years in four generations, the full retirement age will have climbed by just two years. Put plainly, it is possible to receive a payment for an extended period of time.
A chalkboard drawing of a rich individual weighing down one side of a seesaw with a dollar sign, while stick figures on the other side have nothing but questions.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "2. Income inequality"data-reactid =" 88 ">2. Income inequality
Another oft-overlooked issue is that of income inequality. There are two Social Security-specific issues that arise between rich and poor widens over time.
First, because they do not have access to preventative medical care and prescription, but they do not have access to medical care. By living longer, they are able to secure a payout for an extended period of time, thereby straining the program.
The second implication is that they are more likely to have higher earnings, they will receive a higher monthly benefit for an extended period of time. Since, among other things, your monthly social security benefits are based on your highest attainable years of work. That's the opposite of what the architects of the program intended in the mid-1930s.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "3. Congressional inaction"data-reactid =" 113 ">3. Congressional inaction
Americans really should stop pointing their fingers at baby boomers and instead point to their House and Senate representatives. It has been 35 years since the last Congress of Social Security, and the cracks in the program is clearly showing.
It is known that the program does not have adequate capital for the long term. And yet, they've sat on their hands and done nothing. In fact, the last time lawmakers on the Capitol Hill passed a major reform in 1983, they only did so because of the program's asset reserves and they were no longer keen on the road.
<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The problem is that the following Congress waits to act As of 2018, the program 's 75 – year – old actuarial deficit rose to 2.84% .This is the 12.4% payroll tax rate on earned income up to $ 128,400. 2018) needs to be increased by 2.84% today (ie, 12.4% + 2.84% = 15.24%) to completely offset the expected $ 13.2 trillion cash shortfall that lies ahead between 2034 and 2092. If Congress continues to wait, this actuarial deficit, and thus the need to payroll-tax hike on workers right the ship, will shoot well past 3%. "data-reactid =" 116 "> The problem is that the longer Congress waits to act, the more painful the solution will likely be working Americans As of 2018, the program's 75 -year actuarial deficit is at 2.84%, or in layman's terms, this means the 12.4% payroll tax is earned at up to $ 128,400 (in 2018) needs to be increased by 2.84% today (ie, 12.4% + 2.84% = 15.24%) to completely offset the expected $ 13.2 trillion cash shortfall that lies ahead between 2034 and 2092. If Congress continues to wait, this actuarial deficit, and thus the need to payroll-tax hike on workers right the ship, will shoot well past 3%.
The U.S. Treasury mint printing hundred dollar bills.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "4. Monetary policy"data-reactid =" 138 ">4. Monetary policy
Though it's not nearly as common as in the past, which has not been helpful to Social Security.
To cut the fed some slack, it was trying to avoid the complete collapse of US dollars in December 2008. However, by keeping this In the United States, the United States, the United States, the United States, the United States, the United States, the United States, the United States, and the United States.
If we were to look back five or 10 years, we'd like to know that this is a high-yielding asset with 4% and 5% yield. Today, the average yield is about 2.9%, despite the program sporting a record amount of excess cash. In other words, the price of income earning potential.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "5. Low fertility rates"data-reactid =" 163 ">5. Low fertility rates
Rather than blaming boomers for being born, you should consider pointing fingers at Generation X and millennials who are purposefully choosing to have children.
<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "According to The New York Times, based on the data of the Centers for Disease Control and Prevention in September 2017, which represents the lowest fertility rates in this country since 1976. , the US economy is firing on all cylinders now, and the fertility rate remains very low, historically. The New York Times suggest that millennials are postponing marriage more than previous generations, using contraceptives to avoid an unwanted or unplanned pregnancy, and having their first child after their parents' generation. "data-reactid =" 165 "> According to The New York Times, based on the data of the Centers for Disease Control and Prevention in September 2017, which represents the lowest fertility rates in this country since 1976. , the US economy is firing on all cylinders now, and the fertility rate remains very low, historically. The New York Times suggest that millennials are postponing marriage more than previous generations, using contraceptives to avoid an unwanted or unplanned pregnancy, and having their first child after their parents' generation.
The worry is that, if low fertility rates persist for an extended period of time, it would increase the cost to fix Social Security. We're talking about a higher current actuarial deficit, as well as spending outpaced by 5.84% annually by 2092, according to the high-cost (i.e., low fertility) model.
A Social Security card lying atop a work visa.
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<h2 class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "6. A lull in immigration"data-reactid =" 188 ">6. A lull in immigration
Last but not least, a slowdown in aggregate immigration could be blame for Social Security's woes.
Before the misconception start flying, let's clear them up. Under traditional social security (i.e., not including supplementary security income), undocumented immigrants can not receive a benefit. However, immigrants who have been granted a path to citizenship, as well as some undocumented immigrants, should pay into the Social Security program via the 12.4% payroll tax on earned income. Those with a legal path to citizenship may have an opportunity to earn a living entitlement. Meanwhile, undocumented immigrants can pay into the program, but will never receive a hundred back.
<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Put plainly, Social Security links on healthy immigration levels , since immigrants tend to be more likely to contribute to the future, but The New York Times notes that illegal border crossings have been declining for more than a decade. If we're seeing a lull in immigration to the United States, Social Security could be adversely feeling those effects. "data-reactid =" 191 "> Put plainly, Social Security Relies on Healthy Immigration Levels, Since Immigrants Tend to Be Younger The New York Times notes that illegal border crossings have been declining for more than a decade. If we're seeing a lull in immigration to the United States, Social Security could be adversely feeling those effects.
Long story short: Stop blaming baby boomers for this mess!
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<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Motley Fool has a disclosure policy."data-reactid =" 198 ">The Motley Fool has a disclosure policy.
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