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The Social Security Disaster

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Wealth Cycles
Feb 10, 2011

The average retirement age is measured in spans of five years for accuracy.

Of the people that are retiring, how many are completely or semi-dependent on the government? Social Security is a very sore subject for many. People have been working for decades, only to see FICA taxes taken away from their paychecks with the promise of a plan that would take care of their retirement needs.

U.S. Social Security is the largest government program in the history of the world—and it has enormous liabilities to those taxpayers who have paid into it.  According to the Social Security Administration, over the next 75 years, Social Security is underfunded by $5.4 trillion—meaning that Social Security has made promises that exceed its assets by the size of Japan’s entire economy.

The year 2010 was the date set as the tipping point for Social Security; the point when Social Security would take in less than it spent, making it cash flow-negative and forcing Social Security to borrow from Congress, which has already spent the original trust fund that Social Security had build up. If this doesn’t make sense don’t worry—it is the equivalent of you writing yourself a check and hoping that it increases your overall assets. It makes no sense whatsoever, but the government will try it anyway.

Social security payouts have grown faster than FICA tax revenues and are now  burdening our economy. How much longer can this flawed system last?

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There are two possibilities for saving the Social Security system and that is either to increase taxes or to reduce benefits. Is increasing taxes really an option for an economy struggling with immense amounts of debt and such high unemployment?

Reducing benefits is as big a political issue as there, with entrenched political agendas battling over incremental changes instead of the dramatic changes necessary to remake Social Security.

As life expectancy increases people will live longer, demanding benefits over a longer and longer period.

As the graph shows the U.S. retirement age has fallen over the years in the United States. But because of our recent Financial Crisis and the monetary issues around the corner, huge numbers of people are going to have to work through their golden years.

While Social Security is underfunded by $5.4 trillion over the next 75 years, it is underfunded by $16 trillion (larger than the size of the U.S. economy) over the long term. Can the flawed system be revitalized or will Social Security be the thing that brings this once great nation down?

This article was posted: Thursday, February 10, 2011 at 4:38 am

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