Whether directly or indirectly, Social Security has likely
touched your life, or the life of someone you know - a retired
teacher, disabled construction worker, wounded warrior, or
maybe the family of someone who passed away. It's more than
likely, if you have a full time job, a chunk of your paycheck
goes towards social security.
It's the biggest single source of income for American retirees.
Without social security, older Americans would have a poverty
rate of 38%. In reality, they have a poverty rate of 10%.
In 2023, nearly 70 million Americans will receive a Social
Security benefit every month for the year. That's more than $1
trillion. It's most crucial for the 22 million Americans it
keeps out of poverty. That's including nearly 15 million
seniors and 1 million children. It's a lifeline for millions of
Americans. But there are some concerns. Do you know that
social security is going to be insolvent?
Oh, no, it's actually not. It's not the first time that we've
had a discussion on a national level about Social Security's
solvency. The good news is that it has been fixed before.
So is Social Security going to run out? The short answer is no.
But if it was as simple as that we wouldn't have made this 13
minute video.
The first monthly Social Security check was cashed in
1944 for $22.54. Fast forward to 2022, the average monthly
benefit for a retired worker was $1,825. Where does all that
money come from? Social Security is largely a pay as you go
program. That means today's benefits are funded primarily by
the payroll taxes collected from current workers. Self-employed
Americans pay 12.4% of their wages to the government, while
employed Americans pay 6.2%. That's on everything they earn
up to a certain amount. In 2023 that cap is $160,200. And
employers match that amount.
Social Security is extremely important for Americans. The
Social Security payroll tax is the biggest tax that most
Americans pay. Researchers estimate
a single male with average earnings of about $59,000
retiring at age 65 in 2025, will have paid more than $340,000 in
Social Security taxes during his lifetime. Those taxes then go
into two federal trust funds: the old-age and survivors
insurance and disability insurance trust funds, they're
often referred to collectively as the Social Security Trust
Fund, and are invested in US Treasury securities.
Starting in the mid 80s, the Social Security Administration
collected more in payroll taxes and other income than it paid
out in benefits and other expenses. And that lasted for
more than three decades. Asset reserves for the combined funds
were at $2.9 trillion at the end of 2020.
Social Security is invested in government bonds and bonds.
Government bonds are a very safe investment. They're backed by
the full faith and credit of the United States government. And
they do grow over time. And so Social Security has benefited
from interest income over time.
Social Security's structure relies on the ratio of workers
to retirees - there needs to be enough current workers paying in
to fund the benefits of those aging into the program. So what
happens when there are more people retiring than there are
working and paying taxes? Well, that's exactly what we're
dealing with now.
Back in 1950, there were 16 workers paying into Social
Security for each person collecting benefits. But over
time, the ageing of the population has reduced that
ratio of workers to beneficiaries. In the early
2000s, it was three workers per beneficiary. Going forward to
the 2030s it'll only be two workers for each retiree. That
makes the program much much more costly to fund.
Due to a decline in the birth rate after the baby boom, we now
have more people receiving benefits than we have paying
taxes. In 2010, when Social Security's cost was exceeding
its non interest income, the agency had to tap into the
interest. That still wasn't enough and in 2021, the agency
started to dip into the actual trust funds. Now, that $2.9
trillion worth of Treasury securities is dwindling. So much
so that the Social Security Board of Trustees projected in
its annual report that the combined asset reserves of the
trust funds will become depleted in 2034. That means if no action
is taken before then, millions of Americans will receive only
80% of their benefits.
That would dramatically increase the number of retirees in
poverty. So Social Security solvency isn't just a matter of
federal bookkeeping. It is a matter of how we protect
Americans who depend on this program the most.
At the end of 2022, the asset reserves had reached $2.83
trillion, down about $20 billion from just a year prior. Nearly
nine out of 10 people 65 and older, were receiving the
benefit as of December 2022.
About four out of five Social Security beneficiaries are older
Americans, but one in five are not and those people either have
disabilities, or they lost a parent or a spouse to premature
death. That's especially important for children of color
who are more likely to lose a parent. It's also very important
for over 7 million people with disabilities who get Social
Security Disability benefits. This is money that people need
to pay their rent, to pay for food to pay for medical
expenses.
As we all apparently agree, social security, medicare is off
to the off the books now.
Saving the Social Security program is a bipartisan issue.
And there are really only two options: more money coming in,
or less money going out.
Members of Congress don't want to tell Americans they need to
pay higher taxes or receive lower benefits. But that's just
the mathematical reality of how Social Security's financing
works.
So let's start with more money coming in. That means the
revenue sources would need to see some changes: workers pay
more in taxes, or the Social Security fund invested in a
different way.
If we finance Social Security, with the money from the stock
market, that's going to make the the federal budget less stable,
it's going to make recessions and stock market downturns much
more damaging to the federal budget.
Another way to bring more money in is through higher taxes. One
supported plan is to increase the current cap on
contributions, which as I mentioned earlier, is about
$160,000 each year.
Back in the 1980s, the Social Security payroll tax was set at
a level that covered 90% of earnings in the economy. But
because we've had so much inequality growing over the past
40 years now, the Social Security cap is such that it
only covers 83% of wages in the economy. We're missing out on a
lot of revenue from workers who are very comfortable, and who
would be able to contribute more. If Social Security's tax
cap had simply stayed at that same level covering 90% of
earnings in the economy, it would be $300,000 today, and if
we simply increased that that would go a long way to restoring
some of the fiscal balance to the program.
Now, let's get to our other option, less money coming out.
The idea of cuts might not be unilateral. Some experts are in
favor of changing the way benefits are paid out, gradually
scaling down benefits for middle and upper income retirees, and
increasing benefits for the bottom third.
Today, the maximum Social Security benefit you can receive
is about $43,000 per year, that's far above the poverty
threshold. Over time, it makes sense to transition Social
Security to focus more on preventing poverty and old age
and less on paying benefits to high income people. At the same
time, the government should ensure that every worker is
offered a retirement plan on the job, and everyone is signed up
for that plan. So even as Social Security benefits are scaled
down for middle and upper income workers the increase in
retirement savings on their own would make up the losses.
As a presidential candidate President Biden proposed
imposing higher taxes on the wealthy to make benefits more
generous for Americans who need them the most. Broadly speaking,
that's been the kind of reform Democrats have proposed. As
president, he's promised to defend and strengthen the
program, but has yet to lay out a specific plan.
We are all waiting to see what President Joe Biden might
propose as we near the 2024 election. I think that may again
put pressure on him. The Republicans have not put forward
formal legislation really as of yet but have talked about
raising the retirement age, finding different ways to invest
Social Security's trust funds.
The retirement age was gradually raised to 67 years old back in
1983. The last time Social Security finances were in
danger. So yes, this has happened before and Congress
enacted a major overhaul. Now, there are supporters of raising
the age even more to 70-years-old.
This is not a popular proposal. It's a very divisive one, not
everyone is in a position to continue to work. Some people
have jobs that demand a lot of physical labor. And it would be
hard to continue to work until a higher age. Then there's the
opposite argument that, you know, people are having longer
careers living longer lives and this could be sustainble for
some people.
Would there have been a better place for this program of where
this money could have grown more so that we wouldn't be at the
place that we're at now?
Well, that's a good question. Government bonds are a very safe
investment when you're looking at other types of systems like
say, for example, a pension system for state government
employees. Those funds may also be diversified and invested in
things like that, that like the stock market, stock market
investment brings potentially more rewards, but also more
risks.
The good news is, we do still have a decade before the trust
funds are expected to run dry. And experts don't seem to think
it will get to the point that we enter 2034 and Americans
experience a 20% cut across the board.
I'm confident that Congress won't allow the trust funds
become insolvent for two reasons. First, Social Security
is extremely popular. And second, Social Security is
extremely important. Voters care about Social Security, they
would vote out of office, anybody who would impose a
sudden 20% cut in benefits. And the reason is that low income
Americans who rely on Social Security will be pushed into
poverty. Americans aren't going to stand for that, and Congress
won't allow it.
However, what is concerning is how long we'll have to wait for
Congress to take action.
I think it's unlikely that we will have legislation on Social
Security passing in the absence of a crisis. We already do see
increasing interest in the program's long term prospects.
We already do see members of Congress and senators coming up
with ideas about how they might change the system and update the
system. But I doubt that we'll actually see a bill passing into
law until we get pretty close to that date.
President Biden does not have a plan that we can add up to pay
for Social Security. President Trump has false promises that
he's somehow gonna pay full benefits, but we don't know how
he's going to do it for Social Security reform to happen today
we need somebody to make it happen. We need leadership at
either the presidential or the congressional level. And so far,
we don't see it. If Congress had addressed Social Security in the
in the 1990s when we really knew that the program faced long term
deficits, we could have had an easy and painless resolution to
this problem. But by delaying for decades, it means whatever
resolution we would come to is gonna be more difficult.
If reform is enacted today, there's time to plan adjust, and
gradual changes are always less painful than drastic ones.
Whereas waiting until the last minute, experts say could be
detrimental.
I am increasingly fearful they're gonna face a hard
landing. It could cause a recession. If we have to have a
dramatic increase in taxes or a dramatic cut in benefits. The
risks of waiting are huge, not just to Social Security
beneficiaries, but to the economy as a whole. For American
people, the real responsibility for them is to pay attention to
what they're talking about and how they might want to either
vote or influence their lawmakers to decide.