Can you count on your Social Security benefits when retirement rolls around?
Most Americans worry about this – partly due to the nonsense they hear from political opponents of Social Security and ill-informed media. You will hear that the program is bankrupt, its reserves are nothing but a bunch of IOUs, or that Social Security is a Ponzi scheme.
All of those claims are false, but there’s one good reason for concern. Social Security faces a long-term financial imbalance that would force sharp benefit cuts in 2034 unless the government makes changes. The problem stems from falling fertility rates and labor force growth – which reduces collection of payroll taxes that fund the system – and also from the retirement of baby boomers, which increases benefit costs.
Absent reform, Social Security could continue to pay roughly 75 percent of promised benefits. The cuts would mean that the typical 65-year-old worker could expect Social Security to replace 27 percent of pre-retirement income, down from 36 percent today, according to the Center for Retirement Research at Boston College.
No surprise, then, that only 37 percent of workers are “very or somewhat confident” that Social Security will be able to maintain current benefit levels in the future, according to survey research by the Employee Benefit Research Institute (EBRI) – although confidence is much higher among older workers and retirees.
From a math standpoint, potential solutions to the problem are straightforward. The cuts can be avoided through increased revenue, benefit reductions or some combination of the two. But the politics are another matter.