Social Security: A Program in Trouble

By on July 3, 2012 in Current Events with 81 Comments

The Social Security program is popular with Americans. It is also in trouble. What is the future of the Social Security program?

The financial problems of the Social Security program are likely to be important to federal employees who are under the FERS retirement program as they are paying into the Social Security program and this system is a major component of their income after they retire. Federal employees and retirees covered by the older CSRS retirement program did not pay into the Social Security system and do not receive Social Security payments as part of their regular federal retirement.

The House Ways and Means Committee is currently holding hearings on the future of the program and how to address its problems. Here are some of the current “challenges” facing this program as outlined by Congressman Johnson (R-TX) prior to the start of the hearing.

Financial Problems Facing the Social Security Program

According to this year’s report from the Social Security Board of Trustees, Social Security will be unable to pay as much to future retirees as these future retirees may be expecting to receive. And, according to experts on the program,  it isn’t just that Social Security’s current financing outlook is in trouble. It will also be increasingly difficult to protect current benefits if action is not taken soon to protect the system.

According to the Social Security trustees’ report, the Old Age and Survivor program will be unable to pay full benefits beginning in 2035, three years earlier than projected in the previous annual report. That means that workers who are 44 years old today will reach their full retirement age in 2035 at which point they and everyone else will face benefit cuts of 25 percent. In less than four years, Social Security’s Disability Insurance program will be unable to pay full benefits.

The average monthly benefit for a disabled worker today is $1,111. In 2016, revenues will cover 79 percent of benefits. This translates into a potential cut of about $233.

There is more bad financial news for the Social Security Disability Insurance program.

The number of American workers paying into the system increased about 70 percent between 1970 and 2011. The number of people receiving disability benefits has increased by more than 300 percent, from 2.6 million to over 10.4 million. By 2021, the number of beneficiaries is likely to be more than 12 million with total benefits paid of about $196 billion—a 52 percent increase over the $129 billion paid in benefits last year.

The cost of administering the program is also much higher now. The cost of running the program has gone up 68 percent in 10 years. Last year, administering disability programs cost about $7 billion, two-thirds of Social Security’s operating budget of $11.4 billion.

This isn’t the first time the program has faced major financial problems. It was facing major problems in the early 1980’s and the system was “reformed” in 1983. In that year, there was a significant payroll tax increase. With this new money flowing into the system, the Social Security program took in more money than it paid out for more than 25 years. Many Americans assume that this money was invested in marketable U.S. Treasury bonds in order to build up a large reserve of “good-as-gold” marketable bonds that could be resold to pay out benefits when the baby boomers retired.

How Will Benefits be Paid?

For those who are cynical about the ability of government to manage its resources wisely, it is not a surprise to learn that the money already paid for future benefits was not saved and was not invested in marketable securities. If it had been invested, the interest on top of the dollars paid into this program would have been more than enough to pay out future benefits. But, instead of securities that can be sold so the money can be paid out, there are pieces of paper (IOU’s) that state, in effect, that the government has spent the money and promises to pay it back when the benefits need to be paid out. In other words, the government intends to use its power to levy taxes to obtain new money from which benefits will be paid.

The money from the payroll tax has been spent to finance other government programs and operating expenses. There are now about 10,000 baby boomers retiring each day. Much of the money to pay benefits will have to be borrowed and the federal deficit will increase as there is no longer enough money coming in each year to pay current benefits.

Those who are expecting to receive payment from the Social Security program to pay their expenses in retirement are relying on the government to find a way to pay with dollars that have enough value after inflation to provide retirees with a comfortable retirement.

For some federal employees who are now considering retirement, one question to be answered is when to apply for your Social Security benefits. FedSmith contributor John Grobe has considered this question in his article When Should You Apply for Social Security? and it is worth reading if you are now eligible to receive Social Security benefits. Keep in mind there is an “earnings test” for Social Security recipients who are under the full retirement age and the amount of money you receive from a Social Security payment will be reduced if you make “too much money.”

The government has a number of options. It can cut benefits or it can raise taxes or alter the program in some way to take in more money to pay out benefits. Chances are, nothing will happen in 2012 as it is an election year and there are not that many in Congress willing to take a position that will be controversial shortly before an election. (See What Will Happen to Social Security?)

 

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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  1. Kdenmark80 says:

    I know an individual living off social security disability who is very capable of working in the workforce in one capacity or another; if there periodic reviews of individual cases, we could help to eliminate this fraud.

  2. Jon says:

    The rich people should pay full of their salaries, not max. tax of 110,100 dollars (4624.20 dollars through the end of the year, 4.2%), (6826.20 dollars, 6.2%)  If you get 100,000 dollars, you pay full 4.2% 4200 dollars, If anyone get 1,000,000 dollars, they pay max is 4624.20 dollars which is .46%, almost 10 times lower than person with 100,000 dollars salary.

    • LVRichardson says:

      I realize these are old comments, but I would still like to point out that when you say, “the rich people”, you really mean “everyone”. Everyone should pay the same percentage. You’re saying there shouldn’t be a cap on contributions. “Rich” has nothing to do with it. It’s not your place to decide who is rich. It’s also not beneficial to pitch classes of people against each other, or to think in those terms. Besides, virtually everyone wants to be “rich”. What’s the point of demonizing or denigrating that which one wants to be oneself? Doing so ensures that you, yourself, will never be “rich”, however you define it.

  3. PhoenixWoman says:

    And yet another victim of Richard Nixon’s “Southern Strategy”, crafted in 1968, steps forward. 

    Don’t know what the Southern Strategy is?  Here’s Reagan hitman Lee Atwater describing how it’s used to play to people’s bigotries to get them to vote for cutting taxes:

    ”You start out in 1954 by saying, ‘Ni–er, ni–er, ni–er.’ By 1968 you can’t say ‘ni–er’ — that hurts you. Backfires. So you say stuff like forced busing, states’ rights and all that stuff. You’re getting so abstract now [that] you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is [that] blacks get hurt worse than whites.”

    From http://query.nytimes.com/gst/f

  4. PhoenixWoman says:

    Am I the only person in the world who remembers that the guys who want to take our Social Security Trust Fund and hand it over to their brokerage-firm buddies so they can charge us 30% overhead costs (current overhead is less than 1%, by the way — so much for the “inefficient government bureaucrats” lie) have been predicting that the system will crash in twenty to thirty years for the past, oh, five decades now? 

    First it was supposed to crash in 1983, then 1991, then 2007, then 2015, then 2028; the date keeps getting shoved farther and farther into the future, but it’s always at least ten, generally twenty or so, years past the date that a particular doomer made a particular doom prediction.

    Wonder why that hasn’t happened?  First off, as is well known in economic circles but not among the general public (or, it would seem, most media), the privatizers use the wildly-pessimistic economic growth estimates of the Social Security Trustees, who after several decades of largely-GOP and/or Pete-Peterson-bamboozled-Democratic control are probably not exactly trusty where Social Security is concerned.  The Trustees have for years woefully underestimated long-term US economic growth as averaging well below 2% per year (they recently started to use somewhat higher growth estimates, but still generally under 2.5%, and it’s the low-ball estimates that the privatizers keep pushing), which is essentially representing recession/depression-level growth for decades on end, when in fact the long-term historical average is considerably higher.  For example, the seventy-five-year period from 1929 through 2004 featured average economic growth of 3.6% per year, and that’s with the whole of the Great Depression in there weighing down the growth numbers.  Since all Social Security needs to keep going as it always has are average long-term growth numbers of 2.5% or more, we can see here that Social Security never runs out of money — and in fact the biggest threat to it comes from the people who want you to think it’s in trouble so they can take it away from us.

    For more on this, see Irwin Kellner’s series of articles at Marketwatch:

    http://www.marketwatch.com/sto… 
    http://articles.marketwatch.co

    See also this piece by Doug Henwood, which deals with the privatizers’ lie that “we have too many retirees per worker for the system to stay solvent”.  It also references what I call “the bogosity trifecta” — that the privatizers, in order to con us into handing over our Social Security money to their brokerage-firm pals, claim outrageously-high rates of return on privatized pension plans, rates that are only possible if the economy was growing at Clinton-boom-era rates for decades on end, even as they use the pessimistic growth rate projections of the Social Security Trustees to claim that Social Security is going broke: 

    http://www.leftbusinessobserve

    If more people saw these, it’d be a lot harder for former Nixon cabinet member and billionaire Pete Peterson to use his Concord Coalition to fool people on this issue.

    • LVRichardson says:

      It hasn’t happened because we are now $16 TRILLION dollars in debt. The money to pay the benefits is borrowed.

  5. Coco says:

    Seems like another attempt by Bush supporters to privatize Social Security and give that over to all the rich “investment companies” owned by his wealthy friends.  Look how he helped his VP Cheney get rich off no bid contracts for the war effort during his administration.  I understood that the so-called “IOU’s” is a phrase coined by Bush who actually went to see that “paper” and that those are Bonds, not IOUs.  Are you stating that anyone holding a BOND is not going to receive the Bond value?

  6. PUFF says:

    How could this happen, and what did they do with the money? 
    When Nixon told Frost it’s not against the law if it’s the president that does it, Frost blinked back disbelief, caught his breath, and asked Nixon to repeat. 
    Seems Nixon was not the first, or last elected official to have this opinion.

    I would not be allowed a forensic accounting of government books, so I can only guess (opinion coming) where the money went:
    1. “Foreign aid” that was used to enhance the bank accounts of foreign leaders, and not to improve the living conditions of that country’s people. Egyptian officials were bribed to be the muslim friend of Israel, and on and on. 
    2. Earmarks are to impress the voters and get reelected. Many earmarks go to financial supporters, and don’t help most voters much.
    3. Unnecessary wars. The war on terrorism is not one of these.
    4. Unnecessary government. Larger makes more opportunity to rip-off the government.

    When I read articles like this about Social Security I remember what our government did to the American Indians. Made promises, reneged, made new promises, reneged, …
    We are the new age Indians. How!

  7. Fred says:

    So the simple math says: Increase the payroll tax ceiling, increase the minimum quarters and yrs paying into the system, increase the age to collect. The politics is not: How many will like that??

  8. Bella says:

    How can the system work if Congress steals our money and they are not held accountable?  Why can’t the ACLU fashion a new litigation to make them pay us what they took from us and what we should have earned?

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