Does Social Security have a healthy future?
The SSA oversees the most widely used financial relief programmes in the US but changing population demographics mean that the fund will soon be insolvent.
Data from the Social Security Administration shows that last year more than 65 million people received payments from one of the support programmes offered by the agency.
That figure has grown every single year since 1982 and has risen from just 50 million in 2008. The changing demographics of the United States, with people typically living longer and the birth rate decreasing, means that the population is getting older and more people are eligible for Social Security support.
However this trend could have severe consequences for the fate of Social Security. A report from Social Security Trustees found that the current funding system will become unable to cover the programme’s payments by 2034, meaning that recipients may start to receive a reduced benefit.
The report estimates that retirees will only be able to receive 78% of their full entitlement by then. There has been no major Social Security legislation passed since the early 1980s but change is now needed to ensure that vulnerable Americans are not left without sufficient support.
Funding concerns for Social Security programmes
Funding for the SSA’s programmes comes from payroll tax deductions from working people in the US. The payroll tax rate for Social Security is 6.2%, meaning that both the employee and the employer must contribute 6.2% of the worker’s salary to the SSA to fund the programmes. If you’re self-employed you have to cover the whole 12.4%.
The system is designed to run with a rolling surplus in the Social Security Trust Fund, a reserve of money that ensures that the payments can continue through fluctuations in the labour market. However in recent years that excess has been drained by the growing number of Social Security claimants and it is now projected to run dry in just 12 years.
Kathleen Romig, senior policy analyst from the Center on Budget and Policy Priorities, explains: “You want to have the worker to beneficiary ratio at a sort of healthy level where you don’t have too few [working] people paying for too many beneficiaries.”
She adds: “People are having fewer children and because the birth rate is declining you just have fewer workers paying for beneficiaries.”
There are efforts in place to secure the future of Social Security payments but they are yet to get much traction in Congress. Rep. John Larson of Connecticut has proposed a package known as Social Security 2100: A Sacred Trust, which aims to expand upon and boost the funding of Social Security.
In announcing the proposals in a Congressional hearing, Larson said: “Nobody understands better than the president of the United States that Social Security is a sacred trust between the people and its government.”
Legislative intervention will be vital to ensuring that vulnerable Americans are not hit with a sudden loss of income when the programme’s fund becomes insolvent, but it remains to be seen if Larson’s bill will have the votes to pass the Senate.