|Social Security funds expected to be drained by 2037|
|Written by Lisa Crocco, Daily Vidette Reporter|
|Sunday, 06 February 2011 20:58|
Social Security finances are expected to drain by 2037 due to the current economic struggles and the millions of members of the “baby boom” generation nearing retirement.
Social Security was enacted by President Franklin D. Roosevelt during the Great Depression with the purpose to aid Americans in providing a steady income after retirement.
There are several reasons for the recent and rapid Social Security fund drain.
“First, the great recession resulted in lost jobs for many—and some of them, who were age 62 or older, decided to start drawing their social security benefits earlier than expected to provide a source of family income,” Edgar Norton, finance professor, said.
“The second reason is also related to the great recession—skyrocketing unemployment meant less people were working and paying into the social security system. Every worker has 12.4 percent of their pay, up to an income level of $106,800 paid into the social security system—6.2 percent is what you see deducted from your paycheck, the other 6.2 percent is paid by the employer,” Norton said.
He added that people are also living longer. Projections now indicate more benefits being paid out. Back when Social Security started, life expectancy didn’t go much beyond age 65, the Social Security benefit retirement age. Today, half of those still living at age 65 are expected to live to age 85. The Social Security age guidelines haven’t kept up with better healthcare and raising longevity trends.
A fourth reason is the temporary cutback in the Social Security tax from 6.2 percent to 4.2 percent for workers. The cash flow into the fund will not be as high as it would have been had they kept the worker tax rate the same, Norton said.
Ultimately, there is going to be more people drawing from the Social Security funds than those who will be paying into it, accounting for the rapid deletion.
“Seniors right now will not be affected. The generation that will be affected is ‘Generation X’ and the generation after that,” Robert Bradley, politics and government professor, said.
“By the time you hit the age that you would go for Social Security, if nothing changes, it will not be there for you, which is fairly significant,” Bradley added.
Bradley said that some solutions and changes include raising the amount of money taken out of paychecks that go to Social Security, raising the age of eligibility and altering the income levels that make a person eligible to receive Social Security.
“There [are] more people depending on Social Security as their sole revenue source after retirement. Social Security was never designed to be the sole source of revenue for when they retire, it was always meant to be a supplement other pension plans,” Bradley said.
“Save and invest assuming that Social Security won’t be there for you,” Norton said.
“Your generation is not thinking about retirement but it is something that your generation, in terms of voting, has got to start thinking [about] as a pretty important factor as to who you vote for, and you have to make candidates start saying what [they] are going to do about Social Security, because this is a system that, by the time you guys are 30, it may be gone,” Bradley said.