Why Social Security Is Broken

Put plainly, Social Security is the most important social program for seniors in this country. Without the guaranteed monthly income Social Security provides, poverty levels among seniors would spike from 8.8% to more than 40%, according to a study by the Center on Budget and Policy Priorities (CBPP). That’s how important Social Security is.

Unfortunately, this financial foundation for seniors is crumbling before our eyes. A recently released report from the Social Security Board of Trustees suggests that in less than two decades’ time, the program we know today could undergo major changes, all of which would seem to be bad news for current and future retirees. Should Congress fail to make any changes to Social Security, up to a 23% across-the-board cut in benefits could be headed seniors’ way by 2034, per the report.

What exactly is wrong with Social Security? The following 10 stats help explain why this 82-year-old program is now broken.

1. The worker-to-beneficiary ratio could fall 21% by 2035

A person writing "enjoying life" and checking the retired box for employment status paperwork. 

The worker-to-beneficiary ratio is set to fall from 2.8-to-1 in 2017 to 2.2-to-1 by 2035, according to data from the Social Security Administration (SSA) — that’s a 21% decline. This drop owes directly to the fact that more than 10,000 baby boomers are retiring from the workforce every day, and there are simply not enough new workers to take their place. That means the program will soon be paying out more money to retired beneficiaries than it brings in through the payroll tax paid by workers. The current number of workers simply won’t be able to support the ballooning number of eligible retirees.

2. The average U.S. life expectancy has risen by 18 years since the program wascreatedAn elderly couple reviewing their finances.

Another issue is longevity. When Social Security was signed into law in 1935, it was designed to provide a safety net for seniors who lived past the average life expectancy (then around 61 years), generally supplementing their income for a few years.

However, as medical knowledge, access to medical care, and pharmaceuticals have improved, so has our lifespan. Thus the average life expectancy in the U.S. has risen to 78.8 years, while the average 65-year-old today is expected to live two more decades. Meanwhile, the age of Social Security eligibility has only gone up by a couple of years. That means the program is often paying retirement beneficiaries for decades, rather than a few years. Social Security simply wasn’t designed to support the average senior for 20 years or more.

3. Life expectancies among the wealthiest 20% are 12.7 years higher than those in the lowest quintile

A chalkboard drawing of a wealthy stick figure having all the cash, while a family at the other end questions why it has none. 

Income inequality has been a culprit, too. Between 1980 and 2010, the difference in life expectancy between the wealthiest 20% and the poorest 20% of Americans has widened substantially, according to a recent working paper from the National Bureau of Economic Research. In 1980, the lowest quintile lived an average of 76.6 years, while the highest quintile lived 81.7 years — a difference of 5.1 years. By 2010, this gap had widened to 12.7 years, with the wealthiest living an average of 88.8 years and the poorest living to age 76.1 on average.

Why the growing gap? It likely has to do with the rich having easier access to medical care, since price isn’t an obstacle. Lower-income Americans may not be able to afford preventive care that could prolong their life. Thus, not only are the rich living much longer, but they’re also drawing a larger payment from Social Security for an extended period of time; after all, the size of your monthly Social Security check is based primarily on your lifetime earnings.

4. 62% rely on Social Security for at least half of their income

An elderly man counting his Social Security income. 

Social Security may also be broken because those who receive benefits from the system lean on it too heavily. Newly released data from the SSA shows that 62% of seniors receiving benefits rely on their monthly check for at least half of their income. A little over a third (34%) get at least 90% of their monthly income from Social Security.

Meanwhile, the SSA suggests that Social Security income is only designed to replace 40% of beneficiaries’ working wages. Though Social Security will replace more of your pre-retirement income if your lifetime earnings are on the low end, leaning on Social Security for 90% or more of your income is unwise.

5. Americans’ personal saving rate is just 3.5%

A young woman staring at a piggy bank she's holding in her left hand. 

We can also attribute our heavy reliance on Social Security to our absolutely dismal personal saving rates. July data from the St. Louis Federal Reserve shows that Americans were only saving 3.5% of earned income, which is well below the 10% to 15% of earned income that financial advisors recommend workers save for retirement. The 3.5% that workers are saving isn’t even a third of what they were putting away 50 years ago, and it’s forcing them to lean heavily on Social Security because their nest eggs just aren’t big enough to last throughout retirement.

6. The program will lose $88.4 billion in annual income by 2034

A fanned pile of Treasury bonds flanked by a stack of hundred dollar bills. 

Social Security wound up generating $957.5 billion in revenue last year, which is more than it paid out to beneficiaries. In fact, it’s been more than three decades since Social Security paid out more in benefits than it generated in revenue in a year. Though payroll tax provides the bulk of revenue for Social Security (87.3% in 2016), interest earned on the programs’ $2.91 trillion in asset reserves added $88.4 billion, or 9.2%, in 2016.

If Social Security begins paying out more in benefits than it collects in 2022, as predicted by the Trustees report, the programs’ asset reserves will begin to shrink. By 2034, they’ll be completely exhausted, meaning they will earn no more interest income, leaving lawmakers to replace even more revenue.

7. A budgetary shortfall of $12.5 trillion through 2091

A person turning their pant pockets inside-out to signify they're broke. 

Of course, lawmakers have a lot more to worry about than just replacing interest income earned from Social Security’s asset reserves. The Trustees report estimates that between 2034 and 2091 there will be a $12.5 trillion cash shortfall if payouts to beneficiaries are kept at their current levels (including normal annual cost-of-living adjustments). That’s about two-thirds of a full-year of U.S. GDP that Congress must find a way to replace, otherwise those aforementioned benefit cuts of up to 23% may be necessary to keep the program solvent through 2091.

8. A 2.83% long-term actuarial deficit

Social Security cards laid atop a pay stub, highlighting payroll taxes paid. 

The latest Trustees report says there’s a pretty easy fix for Social Security’s woes: raise the payroll tax. The estimated long-term (75-year) actuarial deficit in the report is 2.83%, which is a fancy way of saying that if the current payroll tax of 12.4% on earned income between $0.01 and $127,200 were raised to 15.23% (12.4% + 2.83%), no benefit cuts would be necessary.

But a payroll tax hike of this magnitude has almost no shot of being passed into law, which is a shame, considering that the longer Congress waits, the bigger the actuarial deficit grows.

What’s more, American workers are generally unreceptive to such a large payroll tax hike. Gallup International’s 2016 “Voice of the People” survey found that a 0.8% aggregate hike would be supported by 76% of respondents, but a 2% aggregate hike was favored by just 19%. We can only imagine how few would support a 2.83% increase.

9. Medical care inflation outpaced Social Security’s cost-of-living adjustment in 33 of the past 35 years

A stethoscope lying atop a fanned pile of cash. 

Another issue for beneficiaries is that their Social Security dollars are seemingly worth less and less with each passing year. Social Security’s cost-of-living adjustment, or COLA, is supposed to give beneficiaries a “raise” each year that closely matches the national rate of inflation. However, Social Security’s COLA has come in lower than the medical care inflation rate in 33 of the past 35 years. It’s also been lower than housing and rental inflation in recent years.

An analysis from The Senior Citizens League finds that the purchasing power of Social Security dollars has plunged by 30% since 2000. Put another way, what $100 in Social Security income purchased for seniors in 2000 only buys $70 worth of goods and services today. And with the program facing a $12.5 trillion cash shortfall, altering the inflationary tether to get seniors a bigger annual raise isn’t exactly a feasible option at the moment.

10. 34 years have passed since any major legislative changes

The facade of the Capitol building in Washington, D.C. 

Finally, place some of the blame on Congress. The last time any meaningful Social Security changes were passed into law was in 1983! The full retirement age schedule hasn’t been adjusted since the 1983 Amendment passed, and the income thresholds at which a portion of Social Security benefits becomes taxable has been stuck at $25,000 for individuals and $32,000 for couples filing jointly since 1983, too. Congress’s inaction and partisanship are hurting beneficiaries.

The upside is that Social Security can’t go bankrupt thanks to its payroll tax; as long as people keep working, the program keeps generating revenue. However, the future is looking bleak for those 62% who lean heavily on America’s most important social program.

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