The Social Security Administration (SSA) is in enough trouble on its own. But now, there are three big cultural and economic forces that appear to be taking their toll on the program.
It’s the same program you have plunked your hard-earned dollars into, in the form of mandatory payroll taxes, over decades of work. Maybe we shouldn’t call them your hard-earned dollars, though. Because once that money goes to Social Security, it’s not yours anymore. As the SSA states very clearly:
The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.
Regardless of where the money comes from or whose name is on it, it’s running out.
So let’s take a quick look at each of the big economic trends happening today, and how they’re taking a toll on Social Security even as you read this.
#1 – People are retiring at a faster pace
According to Forbes’s Bob Carlson, “In September 2020, about 3.2 million more baby boomers were retired than a year earlier.”
It’s quite likely that the COVID-19 pandemic played a role here, and Carlson’s source, the Pew Research Center report, shows over 50% more Baby Boomer retirements than 2019. There were also more of those retirements in 2020 than any year since 2012 (see bar graph):
Carlson came to a startling conclusion for Social Security:
Whatever the cause, it’s bad news for the Social Security retirement trust fund. We’re still waiting for the 2021 annual report from the program’s trustees, but it’s likely to show the trust fund will run out of money years earlier than estimated in last year’s report. [emphasis added]
People retiring sooner than expected leaves fewer people paying into Social Security, so that’s a fairly obvious conclusion. We won’t know what the specific impact will be until that annual report for 2021 is released. Still, it’s not positive news.
When we consider our next big development, you’ll see there are even fewer people paying into the system…
#2 – The ideas of work and retirement are changing
According to Ramsey Solutions: “Retirement isn’t an age — it’s a financial number. And there’s no law that says you have to work until you’re 65. That’s a myth!”
That’s your two-sentence introduction to the F.I.R.E. (Financial Independence, Retire Early) movement. The article continues by explaining what this means:
The goal is to save and invest aggressively—somewhere between 50–75% of your income—so you can retire sometime in your 30s or 40s.
To be sure, this is an extreme movement: super-low living costs, simple lifestyles, stringent and zealous savings goals. Those who are successful are problematic, at least from a Social Security perspective.
A successful F.I.R.E. will effectively sit out their peak earning years, denying the SSA their tax dollars. On the other hand, they will also have a smaller claim on future Social Security payments. (That’s not quite as important, because “We use your taxes to pay people who are getting benefits right now,” remember?)
Couple F.I.R.E with another trend called the “gig economy” where workers make a living doing lots of little jobs rather than a single, full-time job. Think of an Uber or Lyft driver, an AirBnB host or a freelance writer to get the idea.
The F.I.R.E. movement is big on gig work:
I love the gig economy, am participating in it, and can’t wait to see where it goes. I love the flexibility it gives me and I don’t mind making way less than a W2 salary to get that flexibility. It’s another one of the superpowers that financial independence provides – the ability to make way less doing something you enjoy.
If people live on less, they are earning less in exchange for more free time. That means less payroll tax generated per gig worker. That certainly won’t help the Social Security Trust fund its obligations much, even if the gig workers all scrupulously report every dollar of income and pay their 15.3% self-employment tax.
Which brings us to the final economic force challenging Social Security over the next few years (at least)…
#3 – Rates, Rates, and More Rates
Rising inflation doesn’t only erode your purchasing power, it presents challenges to the Social Security program too.
Couple that with a lower real rate of return (interest minus inflation) for the Trust Fund’s U.S. bond portfolio, at the moment at least -1.5%. That’s the opposite of return on investment.
If you’re not too depressed to keep reading, it gets worse. Economist Mike Shedlock calculates inflation rates adjusted for increased housing costs. His numbers put the real rate of return is -4.1% (the lowest since 1980).
Regardless of your method of calculating the real rate of return, it’s negative. The money in the SSA trust fund is losing purchasing power every day.
That’s simply not sustainable. And it’s a red flag for those of us counting on Social Security to ease the transition into our golden years.
Social Security May Be in Trouble, But You Don’t Have to Be
With stormy waters ahead for Social Security thanks to these 3 newer forces, a fresh perspective is sorely needed. Granted, a collapse of Social Security won’t happen overnight. First we’d expect a series of warnings, then payment cuts amid a lot of panic over what so many retirees think of as a certainty evaporating before their eyes.
We can’t solve Social Security’s problems. Instead, we encourage you to educate yourself about your retirement options.
It might be time to rethink your retirement savings. Examine your allocations, consider your risk levels, and consider adding physical precious metals such as gold and silver. They could store enough value to give you your own “safety net” should Social Security fail to deliver on its promises.
With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.
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How about it is a Ponzi scheme. That is the biggest factor.
Interesting that we never hear that the welfare fund is running out of money. Fuckers
Or money for teachers’ raises.
or for the 22 million government workers, and the 20 million retired government workers, who put 1-2 years of their salary in their pension plan, then collect for 30-40 years by raising our taxes
Go Galt…methinks the issues of too many jobs not enough workers is not just because people are collecting unemployment money. Why work to have 40% plus taken out in taxes? Why work to support an illegitimate government? Why work to support illegals, many of whom live better than you do? What’s the point? Make enough to get by and no more. Poverty level gets you bennies you wouldn’t have if you made money.
Also? Learn to barter.
More and more here in this community we are trading for items. I make runs up to the Amish village, carrying bags of rabbit feed for Miriam and Titus, the industrious rabbit raising Amish kids I do not film any more. Not because of what you said but because I got the image I wanted.
Now, if I am successful at promoting our rabbits as “Amish Raised and Charcoal Braised” I might have to talk to the elder about getting at least one picture of those young kids with the Lionsmane rabbits. (Okay, first of all, the rabbits I take from the Amish kids are to sell as pets. They do raise meat rabbits, but I sold that little lionsmane rabbit to Titus’s sister. I promised her I would try to sell all of Mopsy’s babies that are pet-worthy. Since Titus bought a lovely spotted mate for Mopsy since I was there last, I’m looking forward to seeing the kits in a month or so. I’m thinking I could actually advertise them as Amish bunnies and sell them for more. Kind of like how people raise black Angus cattle because they are worth ten cents more than the red Angus.
Rare Amish Bunnies.
IMHO the biggest (or maybe most disgusting) compoment of the US retirement system is that some (not all) government retirees cleverly game the rules (massive overtime in their final year of work to goose their benefit; working a second government job after their retirement in order to collect two pensions, etc. etc., depending on the system they’re in).
There was a Chicago area guy who put in his years as a school district chief, and on retirement was receiving a pension of $400,000 annually. All legally, of course.
Given that some workers receive only a pittance, I find the above situation reprehensible, and tantamount to theft. But it’s all white-collar, and legal, so ‘no harm no foul’.
A family member lived near the highest paid retiree in California state CALPERS system. just under half a million a year last time I checked.
Sounds like these people were just smarter than others if it was all done legally.
Or about closing any military bases all over the world and using that money.
“Social Security is a pay-as-you-go system, with taxes on current workers paying for the benefits owed to retired workers and others. The Social Security Trust Fund accumulated a reserve that, at the end of 2019, totaled nearly $2.9 trillion. On a daily basis, funds left over after payment of all benefits are invested in special-issue government bonds, similar to U.S. Treasury bonds, except that they don’t trade publicly. In 2021, payroll taxes will no longer cover 100% of the program’s benefit obligations, so it (SS) will need to dip into its reserves each year to cover a portion of them.”
https://www.investopedia.com/ask/answers/110614/how-social-security-trust-fund-invested.asp
This money from the “reserves” must come from “selling” the bonds to raise cash. The Federal Reserve “buys” these bonds with new fiat currency created out of thin air, adding to the rapid deflation of the value of the dollar.
The “trust fund” contains noting but government IOU’s. From a government that is almost $30T in debt, the concept that there is a “trust fund” at all is another outright government lie.
Again I explain to my fellow American: SS should be a retirement program only but it has been turned into a Welfare Program to serve The Great Society. I retired in 2012 at 66 and when I applied, there were 2 or 3 young Black mothers with two or three kids each in the waiting room for each grey haired Boomer. They were applying for SS Disability for one of their children (with Mental, Behavior, or Emotional Disability). Cut that kind of communist shit out and SS would probably be OK (at least until the dollar crashes from General Welfare and Warfare profligacy).
If Social Security needs more money, why don’t they just ask the Fed for more?