What Will Happen to Social Security?

By on February 8, 2010 in Current Events, Retirement with 11 Comments

How to fix Social Security is a topic that has been around ever since a demographer realized that the number of workers supporting an individual Social Security recipient was gradually dropping. When Social Security was first introduced, there were six or seven workers supporting each recipient. In 2008 the number of workers supporting a recipient was three, and in 2030 it will be two.

According to the Center for Retirement Research at Boston College, by the year 2016 Social Security will no longer be able to pay recipients without drawing on interest earned by the Social Security Trust Fund.

In 2024, payroll tax receipts and interest from the Trust Fund will not be enough and Social Security will need to sell the bonds in the trust fund to cover benefits. By 2037, the Trust Fund will be depleted (i.e., bankrupt). At that time, the Social Security payroll taxes will only cover seventy-eight cents of each dollar of promised benefits.

The figures from Social Security differ slightly from those of the Center for Retirement Research, but even Social Security admits that the Trust Fund will be depleted by 2041.

The way to fix the system is either to cut benefits, increase revenues, or a combination of the two. The Center for Retirement Research at Boston College has an excellent booklet, The Social Security Fix-It Book, which outlines the options that are before us. Individuals can download a copy of the booklet.

The remainder of this article will take a quick look at some of the options suggested. In addition to outlining the choices, the Fix-It book lists the pros and cons of each choice.

Under the category of benefit cuts, the options are:

  • An immediate across-the-board cut in Social Security benefits;
  • Raising the full retirement age (no mention is made of raising the age for early retirement);
  • Freeze the purchasing power of future benefits to current levels;
  • Freeze the purchasing power of future benefits, but use a sliding scale;
  • Adjust the annual cost-of-living adjustment by using a different measure of inflation;
  • Wait for 2037 and cut benefits then.

In the area of raising revenues, the options are:

  • Increase the payroll tax rate by 2% today. That would be 1% on the wage-earner and 1% on the employer, going from 6.2% to 7.2%;
  • Raise the earnings cap so that it will cover 90% of earnings. That would increase the cap from $106,800 to $172,000;
  • Use revenues from the estate tax to cover the shortfall (assuming there is an estate tax anymore);
  • Transfer Social Security start-up costs to general revenues;
  • Raise the return on assets. This is not private accounts; this is having SSA invest the trust fund in higher yielding investments;
  • Wait for 2037 and raise taxes then.

I suspect that Congress will be loath to address any meaningful Social Security reform for a while. After the dust settles from health care reform, it will be time to take a look at Medicare.

The Medicare Trustees estimate bankruptcy in 2017. Compared with 2037, that’s just around the corner.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.


About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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  1. Cristieclark says:

    I think it is real interesting that about 9 or so years ago, President Bush tried to tell the American People that Social Security was in trouble and needed to be changed.  Everyone made fun of him and ridiculed his statements.  Now the truth if coming out.  If people would start searching for truth, this whole picture would change.  The Social Security is not an entitlement as Obama is trying to say.  People paid in for all their working career.  It was to help with retirement.  Now it wasn’t meant to support every illegal alien and non-workers, not paying into the program, so it’s no wonder it is broke.  My parents lived on a ranch and hired a Mexican man to help (they were elderly and needed him).  My father passed away and my mother truly needed him then.  He was able to get his papers and quit working altogether.  He told her that his Social Security payment was all he needed.  This is the problem with our system.

  2. Emulhern98 says:

    How would one compute one’s total contributions to social security? I have my annual salaries since I began working for the federal gov’t in 1965… where would I find the percentages?

    • Guest says:

      You can contact your local Social Security Office…..however, unless you worked in the “private sector’, and earned the necessary “SS Credits”, you may not qualify for Social Security especially if you are CSRS.  I worked in the private sector for many years before I spent 21 years with DOL under FERS, and I would receive annual reports/updates from SS.  They usually arrived in my mailbox about 2-3 months before each birthday.  If you haven’t been receiving these reports/updates, it’s quite possible you won’t qualify for SS benefits upon retirement.

      Don’t take my word for it as each situation is probably different.  I would at least check the SS website for many of your answers.

    • Ruromar says:

       If you have your pay stubs all you have to do is add up the amount shown under “FICA”. This box contains the amount you paid into social security.

  3. Gloworth says:

    I say stop paying children Social Security Benefits, especially “retirement” benefits. Why should the taxpayer pay the children of retired beneficiaries. No other pension system pays a 62 year old for fathering a child. It is also very sexist because not many 62 year old women are having kids. Just because Viagra makes it happen, the taxpayer’s should not have to pay for it.

  4. Grood says:

    What do you mean – raise the percentage from 6.2% to 7.2%, I thought that congress lowered the rate from 6.2% to 4.2% for at least a year. This lowering of the percentage rate gave everybody that was paying into SS a 2% raise in their paychecks. This means that even Congress got a 2% raise (poor babies). Also, if they raise the maximum from $106,8000 to $172,000 most of Congress would pay the maximum into SS, this isn’t going to happen (ever). I thought that President Reagan had fixed SS forever when he brought in the Government workers with their new and better FERS retirement plan. At lease that what he claimed. Congress went for his plan hook, line, and sinker because they were all so much in love with him.

  5. Paul says:

    Everyone should be made to pay into Social Security, no benifets for Illegal Immigrants, and make the FEDERAL GOVERNMENT Pay back into Social Security ALL THE FUNDS that where used for other means…..


    • Lavoie1956 says:

      Well said. Polititians on both sides helped to deplet it. I heard tha if what was taken out was put back – no problem would exist. There should be full disclosure on who took what from SSA and what it was for.

  6. Susieq says:

    I have a real good idea on how to cut spending by Social Security. Force the Administrative Law Judges to have fair hearings on disability claims. They should be forced to abide by the Social Security Rules and Regulations. If they were forced to do that I can only imagine how much money could be saved for Social Security. Another idea is to stop paying benefits to those who do not deserve it. If that means changing the rules then so be it. As it stands now you almost can get benefits for a hang nail, broken foot/leg, etc. Which is absolutely ridiculous. There are too many lawyers and doctors out there who will do anything to get money from the government including falsifying medical records, etc. Lawyers are making too much money to represent claimants who win their cases ($6,000) per winning case. Each Lawyer probably has a caseload of 20 to 30 clients who file for Social Security disability. Some Lawyers have much more because they will take any case that walks in their door winable or not. If the Administrative Law Judge (ALJ)denies the case it can be appealed to the District Court who usually sends it back to the ALJ who may or may not deny it again. It is a viscious cycle. Also, if the Social Security Administration would quit trying to satisfy all the politicians with the number of cases that are adjudicated (more is better no matter the quality) that would also save a huge amount of money. I could go on and on but you get the idea.

  7. Dragonsmashed says:

    If you sued the Government to get the Social Security funds returned to us how do you think the government would pay? Thats right, they raise our taxes.

    The problem with paying into the “trust fund” is that those dollars are invested into governemnt bonds. The money invested into bonds is then available for use by the government. So there is no trust fund, it is an accounting tool. There is no money saved. A significant portion of the U.S. debt is owed to Social Security. Since the extra money invested into Social Security is owed to the people, government must raise the money to pay it back. The way government raises money is primarily through taxation, and so we get to pay ourselves back for the money that has been wasted. Still think investing in the stock market is a bad idea? At least then those dollars would have purcahsed something besides an IOU (that you have to pay for yourself).

  8. seeing Red says:

    Missing Options: I haven’t seen any proposals to limit payments to able bodied people who chose not to work most of their lives and haven’t been funding social security. It appears that many will qualify for almost as much if not more than those that have paid over a career simply due to age or marriage.

    As a FERS employees, social security was one of the 3 parts that we fund.