Social Security

Social Security is a good thing.  They designed this system to be a safety net for the elderly and disabled.  For the most part, it's worked.  The problem is that it should have been adjusted over the years to more fit the demographic changes that the U.S. has undergone.  Plus, Social Security was never meant to live on.  People were suppose to be responsible and plan to have a pension and investments, too.  It's failed in these aspects and our children will pay a hefty toll

I've said this for many years:  There's only so many things you can do to "fix it".  1)  Raise taxes to offset the increasing costs associated with the baby boomers retiring.  2)  Reduce benefits to those on social security 3)  Increase the retirement age at which someone can retire 4) Keep the economy growing at a pace that will increase tax revenue.  #4 is really unsustainable.  All economies will have recessions.  So, we are really talking about #1 to #3 as actionable items.

Let's throw out some stats to help people understand where we are and what needs to be done.  22% of all retirees depend solely on social security(1).  That's a staggering figure to me.  More than 1 out of 5 have nothing else.  They didn't put back anything for retirement (or not enough and have run out).  Of that 22% I'm certain the vast majority (easily 90% plus) are on medicaid as well. The average monthly check is around $1,000 currently.  Further, the number of social security recipients as the baby boomers enter retirement age will rise substantially from its current level after 2014 (2).

"The share of people age 65 or older is projected to grow from 13 percent in 2010 to 20 percent in 2035, while the share of people ages 20 to 64 is expected to fall from 60 percent to 55 percent."

The rise in health care costs for the elderly will crush our country financially.  The ratio of workers to retirees will fall to 2.0 (2). 

"CBO projects that the number of workers per beneficiary will decline significantly over the next quarter century (from 2.9 in 2010 to 2.0 in 2035) and then will continue to drift downward."

Scary stuff indeed.  That means two workers will have to support every one retiree.

What needs to be done then to fix the problem?  In my opinion, it needs to be a combination of #1 to #3 above.  Everyone must feel the pain in order to solve what could be the mother of all financial cesspools.  The other bit of planning that must be emphasized is that every one of us younger than age 65 need to put aside investments now, so that social security is not our only income in retirement.  If you've read my Roth IRA article, you know there's a smart way of approaching this.  Building up your taxable buckets first, then switching to the Roth later is by far the best methodology.

We can solve this problem.  I just hope that the Democrats and Republicans can come to a reasonable compromise and work together.  That said, I'm not holding my breathe.  I just hope my children aren't holding the bag.




(1) http://www.usatoday.com/money/perfi/general/2005-08-15-getting-by-usat_x.htm
(2) http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf