No discussion on fiscal sanity can afford to neglect Social Security. The Social Security program functions as a promise to America’s seniors that they will not have to live in poverty during retirement. But that promise is increasingly dubious. Social Security is the largest area of spending in the federal budget, at 24 percent, and rising.
There are options, however. A plethora of reforms exist and can be attempted instead of the status quo of ignoring the program’s growing insolvency until all its promises are broken. Some possible solutions include:
Adjusting the Benefit Formula
Changing the Eligibility Criteria
Fixing Social Security Disability Insurance, and
Allowing Young Americans to Opt Out
Social Security in Review
In 1935, Congress passed the Social Security Act, and then President Franklin D. Roosevelt signed it into law, creating a federal system of benefits for the elderly past a certain age. In 1956, Congress amended the law to include disability benefits as well.
Because politicians have chosen to neglect necessary reforms to keep the program modern and stable, we risk harming the very people Social Security was designed to protect. It is only by responsibly controlling costs and enacting smart reforms that we can achieve true retirement security, expand retirement choices for every generation, and reduce the national debt.
Social Security is actually split into three programs: Old Age Survivor’s Insurance (OASI), Disability Insurance, and Supplemental Security Income. Overall, these programs are supposed to keep the most vulnerable citizens out of poverty and its price tag in FY2014 was $913 billion.
OASI is the largest portion of the program and provides a monthly cash benefit to over 40 million seniors. Payments are financed by the payroll taxes taken from the paychecks of current workers. Historically, this system has worked because a larger amount of workers could support a smaller group of beneficiaries. The accelerating retirement of the baby boomer generation is causing a sharp decrease in how many workers can support a single retiree. This ratio declined rapidly from its peak at the start of the program (16:1) and has declined to an unsustainable rate (2:1).
Every year, the Social Security Trustees publish a report on the financial health of the system. Since 2010, Social Security has been paying more in benefits than it receives in payroll taxes. This “cash flow deficit” is being covered by past surpluses that have accumulated in the Social Security Trust Funds. But in 2033, the Trust Funds will dry up and every beneficiary will see a 25% across-the board-cut. This scenario must be prevented as it would throw millions of seniors into poverty and cause a budget crisis that could threaten the nation’s economy.