The Real Problem With Social Security

If you’ve read the recent headlines on social security, you know that many commentators are predicting its “demise.” Why? Next year—and much sooner than expected—the social security system will begin paying out more than it takes in. But is this switch from a surplus to a deficit the real problem with social security? I don’t think so.

The problem

First of all, this transition is both long expected and necessary. Think about it: social security has been running a surplus for decades to build up a pool of capital that could be drawn down. The key here is the boomers, who were paying in and are now taking out. Just as with your own retirement account, you save for decades and then start drawing it down. This shift is normal and nothing to worry about.

What is worth worrying about is the pace of the drawdown—and here lies the real issue. Based on current projections, the deficit will be large enough to draw down that surplus by the mid- to late 2030s and then be insufficient to meet benefit promises. Note that this is when I will be retiring (hopefully), so I get your worry—and I take it personally.

By putting it this way, however, we have defined the problem. Now, we can start to worry about it intelligently. The problem is not the deficit, nor is it that benefits may be cut in 30 years. The problem is that the revenue raised for the social security program is, as of now, insufficient to allow that balance to be kept.

Read More at Link

Leave a Reply

Your email address will not be published. Required fields are marked *