This chart shows why baby boomers are blamed for social security problems – The Fool Motley

Of all the important social programs in the United States, none are more important than social security. Every month, more than 62 million people receive a check for benefits, of which about seven out of ten are retired workers. According to the Social Security Administration, 62% of these elderly beneficiaries rely on their monthly payments to account for at least half of their income. In other words, we would probably be dealing with greatly higher rates of poverty among the elderly at the present time, without the existence of social security.

Despite its importance, social security faces serious problems

Yet this savior of a program is not at its best. Latest Social Security Board Annual Report Reports Major Change this year. For the first time since 1982, the program will spend more money than it generates revenue. Although the estimated net cash outflows ($ 1.7 billion) are relatively small compared to the $ 2.89 billion available to social security in its asset reserves, it is clear that this definitely signals the lack of sustainability of the current payment schedule. In fact, if the current payment schedule remains unchanged, administrators predict that the $ 2.89 billion in surplus money will be completely depleted by 2034.

Now, before you throw in the towel on Social Security, know that she can survive and survive without any excess cash in her coffers. As long as the US public continues to work, payroll taxes of 12.4% on earned income (up to 128,400 USD starting in 2018) and the taxation of benefits ensure that money will continue to be paid for any payments to eligible beneficiaries.

The disadvantage is that, as the payment schedule is not viable, a widespread reduction in benefits of up to 21% could be considered. This reduction in benefits (according to the directors' report) assumes that Congress does not generate additional revenues or reduce expenditures until 2034.

With seniors so dependent on social security, these forecasts are not really encouraging.

This overwhelming picture (wrongly) blames baby boomers

You may be wondering how the situation has become so serious with social security. While a number of ongoing demographic changes are behind this change, much of the responsibility lies with baby boomers.

As shown in the chart below, thanks to the SSA Fast Facts & Figures report for 2018, recent benefits to retired workers have risen sharply since the Baby Boomer generation began retiring on retirement. end of the 2000s.

In nominal terms, the average number of retired workers who initially claimed social security benefits on an annual basis doubled from 1.5 million in the late 1970s to 3 million in 2017. This is important because There are just not enough new workers entering the job market. support this massive exodus of baby boomers from the workforce. By 2035, the ratio of workers to beneficiaries should rise from 2.8 to 1 to only 2.2 to 1, which is a statistical burden for the program.

Boomers are a scapegoat for bigger problems

But is the damage caused by social security really the fault of baby boomers leaving the labor market? Honestly, no. Although the chart data does not lie, baby boomers are very low on the totem, which is why social security is facing headwinds.

If anyone should be thrown under the bus, it should be Congress that has not acted for 35 years and that matters. Although some minor modifications have been made to the Social Security Act since the last overhaul of the program in 1983 – for example, the addition of a second tier of benefit taxation in 1993 and The removal of the retirement earnings test for those who reached or retired in 2000 – legislators have done little to strengthen the social security of current and future retirees.

The biggest problem with Washington's wait-and-see policy is that the longer Congress waits, the more painful it will be for American workers. In 2018, the directors estimated the actuarial deficit over 75 years at 2.84%. In simple terms, this means that for the program to continue making payments at current levels without any reduction and One year remaining asset reserves by 2092 (ie 100% for trust funds), 12.4% income tax on earned income should increase by 2.84%. aujourd & # 39; hui (12.4% + 2.84% = 15.24%) to get there. If Congress continues to wait, the actuarial deficit increases well in the range of 3% or even 4%, making the situation more painful for the workers.

Income inequality also deserves a finger.

When social security was introduced in 1935, it was intended to provide financial protection for low-income earners who could no longer generate income. And while the program has managed to keep millions of workers out of poverty, it also disproportionately favors the rich over time.

You see, the affluent do not have financial constraints to receive preventive medical care or prescription drugs. This is not always the case for people with low incomes, who may not have access to preventive care and / or prescription drugs. As a result, longevity tends to favor the richest relative to low-income groups. Since, by definition, the rich earn more every year throughout their lives, they also receive an above-average benefit check for a long time. This is the opposite of what social security was supposed to do when it was conceived in the 1930s.

In summary, the problems of social security go well beyond the growing number of baby boomers receiving benefits.