Social Security Is Not as Doomed as You Might Think
April 6th, 2016
If you listen to some politicians and alarmist headlines, then you might reach the conclusion that the Social Security system is doomed to fail at any time. The reality is that while the system needs adjustments the situation is not completely broken.
For the most part Social Security pension benefits have always operated on a pay-as-you go basis. The money collected in taxes is quickly spent on benefits. The system requires that there be enough people working and paying taxes to cover the current pension benefits.
The U.S., however, has an aging population. It is predicted in the future that benefit obligations will exceed the amount of money taken in by taxes.
However, as My San Antonio explains in "Will Social Security Last Until I Retire?" that does not mean that Social Security will go broke soon nor does it mean that Social Security will disappear when its benefits exceed its revenues.
Currently, Social Security has another source of revenue.
In years when taxes exceed benefits the extra money is invested in Treasury securities and earns interest. For now the total revenue from taxes and interest is still greater than the amount paid out in benefits.
That is expected to continue for another few years.
In fact, the situation does not become too problematic until 2034 based on current projections, which gives ample time to fix the system. Even if the system is not fixed by 2034, that does not mean that Social Security would disappear entirely in that year. At that time revenue would still cover approximately 79% of projected benefits.
In a worst case scenario, people would most likely just receive smaller benefit checks.
Given that there is still plenty of time to make corrections and that the two major political parties are in vehement disagreement over how to make those corrections, a solution might not come quickly.
Fortunately, it does not have to.
Reference: My San Antonio (March 19, 2016) "Will Social Security Last Until I Retire?"