Checking In on Social Security

Amid a renewed public interest in shrinking down the government, a number of deficit hawks are taking aim at Social Security, which takes up a big chunk of the government’s $6+ trillion annual budget. (Reason)

A new Cato Institute report: The Social Security trust fund is made up of IOUs and not real savings, making it entirely reliant on future taxes or borrowing to pay out benefits.

• This means the system is financially unstable and a growing burden on taxpayers.

• Fixing it requires structural reforms — such as reducing benefit growth, raising the retirement age and targeting benefits toward lower-income retirees — rather than superficial fixes like raising payroll taxes or chasing short-term solvency goals.

The numbers: Social Security’s trust fund is projected to run dry in 2033, forcing benefit reductions to match revenue shortfalls as required by law.

• Free the Facts, a nonpartisan research group, reports retirees face a 21% cut to their benefit checks starting in 2033 under current forecasts.

What that looks like: According to Free the Facts, a typical retiree who worked for 40 years and earned an average of $75,948 would expect $30,835 a year in benefits in 2034.

• But assuming current trends continue, that amount will drop by 21% to $24,360.

Why: In 1945, there were 15 workers paying for each Social Security retiree. Today there are fewer than three.

• Americans are also living much longer than they used to (life expectancy has increased by nearly 15 years since 1940).

• This means Social Security recipients are receiving benefits for longer periods of time, and there are fewer workers paying into the program.