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social security challenges

Underestimated Challenges Facing Social Security

In May 2015, researchers from Harvard and Dartmouth published a report suggesting that actuaries for the Social Security Administration have been underestimating the demographic challenges facing the program since 2000.1 The fact that Social Security is in trouble was not a surprise, but the possibility that the day of reckoning might come sooner than previously projected generated considerable media attention and may spur renewed political debate.

Social Security is the centerpiece of America’s retirement safety net. Nine out of 10 retirees and eight out of 10 workers are counting on the program as an important source of retirement income.2

Regardless of your age and working status, this might be a good time to look at the challenges facing the program and the potential solutions for addressing its fiscal problems.

Battling Demographics

There is no mystery to the fundamental problem. Because of Americans’ longer life spans and lower birth rates, there are not enough workers to support the growing number of beneficiaries. In 1955, there were 8.6 workers for each beneficiary. The number of workers per beneficiary fell to 4.0 by 1965 and 3.2 by 1975. Currently, there are only 2.8 workers contributing to Social Security for each beneficiary. By 2035, this is expected to drop to 2.1, at which point it will level off.3

Since 2010, the Social Security system has been supplementing its revenues from trust funds built up during the period when revenues exceeded expenses. Based on current actuarial projections, these funds will run out in 2033, at which point the program might be able to pay only 77% of scheduled benefits; the percentage falls to 72% by 2088.4

Although the Harvard-Dartmouth researchers did not offer a specific date when the funds might run out, they found that the program’s expenses have been consistently underestimated since 2000, primarily because they were not fully adjusted for increasing life spans.5

1, 5) Journal of Economic Perspectives, Spring 2015
2) Employee Benefit Research Institute, 2015
3–4) Social Security Administration, 2014

Freeman Owen, Jr - Host of "Safe Money Talk" on CBS Radio The Big Talker 1580AM Don’t rely solely on Social Security for your retirement income. It’s not a safe move.  Let me help you establish SAFE ways to ensure you reach your retirement goals.  Meet me for a FREE retirement strategy consultation at my office at (866)471-7233 | MD, VA & DC.