Social Security System in America: Where is it Going?

Social Security in America is a national program currently administered by the federal government. The program runs well. It’s solvent presently, but given the demographics there are concerns about the future. In January 2011, members of the baby boomer generation born between 1946 and 1964 will begin retiring in large numbers. It’s the largest of the currently identified generations—much larger than those generations that immediately follow—generation X whose members were born between 1965 and 1981, and generation Y (or the Millennial generation) born between 1982 and 1998.

Baby boomers measure at about 80 million currently—or about one-quarter of the population of America—and will retire at a rate of about 10,000 per day. Currently their retirement rate is well under the 10,000 per day estimate as they are retiring far more slowly than expected. They are an energetic group, but have been slowed in retiring in the expected numbers by the recession which began in 2008, from which we are recovering more slowly than was hoped.

Many baby boomers are clearly delaying retirement. Some may have lost part of their expected net worth due to the reduction in housing values or due to the reduced value of markets supporting their 401K or other retirement programs. However, many felt that at the time of retirement they would not be dependent on their Social Security income—and indeed only a little over 30 percent of currently retired individuals depend mainly or exclusively on Social Security to provide retirement income. In Medicare/Medicade we have the larger problem, but more about that at another time.

As baby boomers retire, the numbers of those retired and living partly or fully supported by Social Security will begin to exceed those in later generations paying into the system. While the system appears solvent through 2030, the pressure of additional numbers will make it increasingly difficult for the system to remain solvent without serious adjustments for the longer term. Later retirement age, reduced payouts to those with alternative funds to allow them to have a comfortable retirement are strategies that can be applied to stretch the funds available to take these demographic issues into consideration. In time, other strategies may need to be applied, but it appears likely we can avoid serious difficulties in the Social Security system by applying modest measures such as the ones noted above. There appears to be no requirement to privatize the system presently, and given the recent strategic missteps of the financial sector in protecting the nation’s wealth there is little support for this to happen—at least not in the short term.

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