Social Security Just Celebrated Its 88th Birthday: 3 Reasons It May Not Survive To Turn 100
Written by
Vance Cariaga
Edited by
Cory Dudak
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Social Security recently turned 88 years old, which means that for nearly nine decades, Americans have depended on the program for retirement and other benefits – all while worrying over how long those benefits will last. That’s as true today as it was back in 1935, when Social Security launched.
The near-term future of Social Security is well-known: A major funding source is expected to run out of money by 2033 or earlier, which could lead to a 23% reduction in benefits. Beyond that, the picture is much fuzzier.
Fears of Social Security collapsing due to funding issues have circulated for a long time, even though roughly three-quarters of the program is self-sustaining because of payroll taxes. Despite Social Security’s troubles, many experts downplay fears that it will one day disappear.
“I don’t believe that the Social Security program is in danger,” said Joe Wilson, a registered financial advisor and partner at Ten Point Financial. “Too many retirees depend on the payments to live on in their elder years…Getting rid of this program will essentially put a large percentage of the elderly into poverty.”
Even so, there is concern about Social Security’s future in light of the looming depletion of the Old Age and Survivors Insurance (OASI) Trust Fund, which is expected to run out of money in about a decade. When it does, some retirees could face a cut of more than $17,000 a year, according to one estimate.
Because of the upcoming shortfall, lawmakers and political candidates have trotted out various fixes that range from cutting benefits, raising the full retirement age or hiking taxes to completely overhauling the system and replacing it with something else.
Here’s a look at three reasons Social Security in its current form might not survive to turn 100.
1. Lack of Funding
Former New Jersey governor and 2024 Republican presidential candidate Chris Christie recently grabbed headlines when he said Social Security “will be bankrupt” in 11 years. That’s overstating things by quite a bit, considering he was probably talking about the looming depletion of the trust fund, which will only cut the program’s funding by about 23%.
Bankruptcy should be fine during the foreseeable future because Social Security payroll taxes fund more than three-quarters of Social Security. Currently, employees and employers must pay 6.2% each in Social Security payroll taxes, while self-employed individuals must pay the full 12.4%.
Nobody has suggested getting rid of this payroll tax – at least not yet. In fact, most of the current talk involves raising those percentages to bring more revenue into Social Security.
But there’s always the possibility that lawmakers will decide to restructure Social Security so workers are no longer responsible for funding it. If this happens – and if no adequate funding replacement is proposed – Social Security in its current form might not survive.
2. Privatization
This idea has been batted around for decades – replacing Social Security with a private system in which Americans are responsible for funding their retirements without the government playing a role. The idea has never even gotten close to making it into law, but politicians still pursue it.
Former Vice President Mike Pence, another 2024 GOP presidential candidate, proposed a privatization scheme earlier this year during a speech at the National Association of Wholesaler-Distributors summit. A video of the event was obtained by American Bridge 21st Century, a super PAC and tracking group that supports Democratic candidates.
“There are modest reforms in entitlements that can be done without disadvantaging anybody at the point of the need,” Pence said at the summit. “I think the day could come when we could replace the New Deal with a better deal. Literally, younger Americans can take a portion of their Social Security withholdings and put that into a private savings account.”
Obviously, if Pence or someone like him succeeds in replacing Social Security with a private system over the next dozen years, the program will not survive to see 100.
3. The Government Goes Bankrupt
This has never happened before, and there’s no reason to believe it will happen now. But….
The national debt approached $32 trillion earlier this year, which means it has more than doubled in a little over a decade, Forbes reported. If the debt doubles again in the next ten years, it will reach “a staggering” $62 trillion – nearly three times greater than the current GDP.
Here’s a particularly gloomy scenario, according to Forbes columnist Mike Patton, president of Integrity Wealth Management:
“If the national debt continues to rise until it reaches a breaking point, America will not be able to meet all of its financial obligations,” Patton wrote. “This will cause a reduction in its credit rating, and we will have to pay a higher interest rate on new debt, which will only exacerbate the problem. Will the national debt bankrupt America? If politicians fail to control spending, then America as we know it will cease to exist at some point.”
Should this happen, there’s also a strong possibility that Social Security as we know it will cease to exist.
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