Social security also known as OASDI (old age survivors and disability insurance program) is at an all-time low and will soon decrease before beneficiaries who are set to receive it get the chance to see all of it. Although, social security can’t run completely dry or go bankrupt, the already intermediate payments could go even lower. The long-term foundation for social security is highly shaky. There are four main problems that social security will soon face which are, falling worker to beneficiary ratios, rising life expectancies, close to record low interest rates, and stalemates within the congress. By the year 2021 the government will start burning through stored up cash which leads to a potential cut of almost 20 percent by 2034.
The main problem for social security is a demographic shift of the worker to beneficiary ratio from the baby boomer era. Between the years 2010 and 2030 we are expected to see 70 million more baby boomers retire which can become a huge problem because of a higher number of beneficiaries that will become eligible for social security which essentially means less money overall. Between 2015 to 2030 the ratio is projected to fall from 2.8 workers to 1 retiree to 2.1 workers to 1 retiree. So, soon there won’t be enough revenue to provide for the big number of beneficiaries.
Interest rates are heading towards an all-time low which is not necessarily good for someone who makes money off fixed income sets. Low interest rates are good for people looking to become home owners or home owners that want to refinance their house and even others who are looking for loans but not for social security receivers. The OASDI (old age survivors and disability insurance program) invest in special bonds only available for trusts, and the yield rate is around 3.7 which has a possibility of being below the inflation rate. The longer the interest rate stays low, the lower return on investment for social security.
Rising life expectancies have also become a problem for social security. As sad as it is people living longer is detrimental because if they live longer the government must pay out more money. In the 1960s the average life expectancy for an American adult was 70 years old. Now the life expectancy has risen to an estimated 78.9 years. The improvement of life expectancy can be credited to better health care and advanced Phamaceuticals. The engineers of social security never expected people to live as long as they do now drawing out payments from the government.
Lastly, the agency is in trouble because congress is at a stalemate on what to do about the problem and they aren’t in any hurry to fix it. They haven’t made any major reformations that would make an impact to social security for 34 years. Minor changes have been made but nothing worth noting. Both Democrats and Republicans have come up with solutions but neither party is willing to compromise or give up ground to find an agreeable solution.
The solution that I have come up with to fix the problems that have haunted social security for over 20 years is to raise taxes. The democrats have a similar idea in which they want to increase taxes but only for the rich. The flaw with that plan is that both sides will have a hard time approving the plan if it just targets the rich. Targeting the rich isn’t necessarily the best solution because even though they make more they aren’t the ones who benefit from the aid very much. They policy that I would approve would be a higher flat tax because it targets no one and helps anyone who will be getting social security in the future.
Another policy that I would put into place if I were in the position to do so would be to raise the age at which you can become available for social security. The current age you can receive benefits is currently set at 67 years old. If that age is moved up by as little as a year it can reduce benefits by 7 percent. Moving the age would also eliminate 15 percent of social security’s funding shortfall.
In conclusion, social security is rapidly running out and congress must take action before the problem becomes more serious than it already is. Although, it can’t run out or go bankrupt they will have to decrease the amount or make some budget cuts if nothing is done. Though, there are many problems such as raising life expectancies, lower worker to beneficiary ratios and record low interest rates they can be fixed by either raising the age you are able to receive or raising overall taxes.