Over the years, IWF’s written a lot about Social Security. According to the Congressional Budget Office:
Social Security is the federal government’s largest single program. About 54 million people currently receive Social Security benefits. About 69 percent are retired workers, their spouses, and children and another 12 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The other 19 percent are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits. Social Security’s outlays in fiscal year 2010 totaled $706 billion, one-fifth of the federal budget; OASI payments accounted for 82 percent of those outlays and DI payments made up about 18 percent.
Unfortunately, the program is in dire financial shape – a situation that’s only going to get worse the longer we ignore it. For a good overview of the problems with the program and the soon-to-be-depleted trust funds, I recommend reading my colleague Carrie’s article “Social Security’s Straightforward Math.”
Suggestion #26: Give individuals the option to put their retirement savings into private accounts.
When the trust funds are depleted (DI is expected to be exhausted in 2018, and OASI in 2042), the programs will be unable to pay full benefits – a situation that will particularly hurt today’s youth. According to the recent Social Security Trustees Report, “Projected OASDI tax income will be sufficient to finance about 75 percent of scheduled annual benefits in 2037 through 2084 after the combined OASI and DI Trust Funds are projected to be exhausted.”
Using the Social Security Administration’s own numbers, the Students for Saving Social Security warned in 2005, “Under the current system, young Americans will pay thousands more in Social Security taxes than they will ever receive in benefits. Someone in their late 20s today will lose about $84,000 (in 2004 dollars) under the current system. Instead, that money is lost to the Social Security system.” What kind of a deal is that?
Simply putting more money in the system isn’t going to work, because the program’s design – having today’s workers pay the retirement costs of today’s elderly – are little more than a demographically unstable redistribution program. The federal government should have no role in arranging the retirement savings of American citizens. Accordingly, the Social Security program should be gradually phased out over time, with younger workers allowed to deposit an increasing proportion of their income into personal savings accounts. Individuals will benefit from higher yields on their investments – as well as ownership and control over their own money. In addition, these funds could be passed on to their beneficiaries upon death (at present, the money reverts to the government).
Today’s youth deserve better. Let’s begin a transition period to a sustainable, private retirement system, and encourage individuals to take responsibility for their finances throughout the course of their lives.