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Social Security Turned 80! What You Need to Know…Submitted by Paul B. Miller, CFP on December 28th, 2015
Social Security recently celebrated its 80th birthday. After serving generations of Americans during their retirement, what is the state of the country's first and largest social welfare program in the 21st century? What challenges does it face going forward, and more importantly, can the generation paying into the system now expect any return on their investment in the future? Take a look at the State of Social Security in 2015.
Americans are Healthier, and That's Not Helping
You'd think that it's a good thing to hear that Americans are living longer. Unfortunately, the fact that you're living longer than your grandparents or great-grandparents means that Social Security is struggling to keep up. The average retiree is now collecting 12 additional years of benefits compared to those retiring in 1940. Not only are Americans living longer, they are retiring earlier. The combination of these two factors is putting immense strain on Social Security as it struggles to provide enough benefits to all program beneficiaries.
Additional Funding Issues
Even more challenging than the longevity of Americans is the contrast in size between generations. Younger generations are responsible for paying into the Social Security system to support the current generation of retirees, and hope to have the same support in the future. However, the Baby Boomer generation (those born after World War II until 1964) consists of roughly 76 million Americans according to PRB.org. This accounts for almost one-quarter of the American population of 314 million people.
This means that the single largest segment of the American population is retired, not contributing to Social Security, drawing on the program, and relying upon smaller generations of American society to support the program. The result is an annual shortfall in funding the program's future obligations. While there were 5 workers paying in for every one retiree in 1960, there are now less than 3 workers paying in for every one retiree. Also, the program has been expanded in recent years to give benefits to spouses, widows, and widowers, and now covers 60 million retirees compared to the 220,000 it had to cover in 1940.
Not Going Away Anytime Soon
It might seem like all doom and gloom for Social Security, but at 80 years old, the program is still running strong. If Congress makes no changes or alterations to the program whatsoever, it could still provide benefits to retirees in full through 2034, which falls just a hair shy of its 100th birthday. From that point to 2089, the program has enough funds and future planned contributions to provide Millennials with retirement benefits on a three-quarters level.
The Average Social Security Check
Today, the average Social Security check is $1,221 each month to retirees. The amount of your benefits are based upon a lifetime of savings, not the amount which you paid in over the course of your working lifetime. Due to the Great Recession and other issues with funding, 1 in 3 people now rely on their Social Security check to cover upwards of 90% of their monthly expenses, creating tight financial situations for millions of older Americans.
Social Security has a lot of positives going for it, and a lot of worrisome signs regarding the future. The program is in need of funding alterations. For example, no changes have been made to the way the program is funded, which is with a 12.4% tax on wages earned up to $118,500 each year.
In order to survive the changing retirement climate, Social Security can't spend too much time reveling in this milestone. With more Americans retiring earlier and living longer, and less workers to contribute to the fund, new progress must be made to ensure Americans can celebrate the centennial of Social Security with fervor and joy, not caution and fear.