Social Security at 90…What’s the Future Look Like?

Social Security’s 90th birthday gives us pause to reflect on its legacy as one of the most successful social benefits programs of our time. Signed into law on August 14, 1935, the program now provides financial support to nearly 75 million Americans. Some depend on it for retirement income, while others rely on it to compensate for physical limitations that prevent them from working. Additionally, some receive benefits as dependents of workers who have contributed to the program during their participation in America’s workforce.

Whatever way you look at it, Social Security is without question the underpinning of economic security for a large swath of the American population. For many, it is the safety net that ensures some degree of comfort in retirement or in times of financial stress. For most, it is compensation for a lifetime of workforce participation and contribution to the building of an economy that is the model of the free world.

Although Social Security has undergone a few changes over the years, it remains true to its purpose of alleviating poverty and promoting economic stability for many vulnerable Americans. Social Security remains an important part of retirement planning for all Americans, a purpose growing in importance in the ever-changing world of post-career financial planning. For retirees and their dependents, Social Security offers a source of guaranteed retirement income, free from investment risk and market fluctuations. 

The Program is Facing a Critical Juncture

After nine decades of meeting its financial obligations, Social Security finds itself in challenging circumstances. The financial reserves that have accumulated over the past few decades — reserves that reached roughly $2.9 trillion just a few years ago — are now steadily evaporating. Meeting the obligations earned by current beneficiaries requires the system to pay out more than its revenue, and future commitments are projected to widen the gap between income and expense further. As this happens, Social Security’s reserves are projected to continue to deplete, reaching a zero balance within six or seven years.

When the trust fund reserves are entirely gone, Social Security benefits would be forced to move to a cash basis, where benefits paid must equal revenues received. This sets program beneficiaries up for severe consequences–an across-the-board cut in benefits that would grow as more retirees enter the program. Current projections are that this benefit cut would be in the range of 20% to 25%. Not a pretty sight, for sure, but not a hopeless one, either.

What Needs to Happen

With time running out, it becomes critical to address the concerns about the future of Social Security. There are solutions, with many recommendations having been submitted to Congress for actuarial evaluation over the past few decades, yet no progress has been made toward a remedy.

As an example of the leading thoughts on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to meet the demands of 21st-century economics. AMAC’s position is that this can be achieved without payroll tax increases through relatively slight program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating payments to higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) improved survivor benefits, (4) eliminating the reduction in benefits for those choosing to work before full retirement age; and (5) improved savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission to preserve Social Security for current and future generations and has garnered the attention of lawmakers in D.C., meeting with numerous congressional offices and staff over the past decade. To learn more about AMAC’s plans, click here.

The Cost of Doing Nothing

AMAC’s firm belief is that the promise to guarantee Social Security for all Americans must be kept. Failure to address the financial shortcomings of the program as it’s currently structured would deny current and future beneficiaries a significant portion of the safety net they’ve earned. It would eradicate the provisions they’ve made for their dependents. Even more significantly, the projected benefit reductions would lead to more than 16 million people over the age of 65 falling below federal poverty limits, according to studies by the Center on Budget and Policy Priorities.

Social Security insolvency is not a self-correcting problem…but it can be fixed. It takes Congressional attention and political will. The solutions are all around us, and time is running out. Every American has a vested interest in sustaining the future of Social Security, and all are urged to express the urgency of corrective action to their respective congressional representatives…before it’s too late.