Social Security benefits are self contributed, which implies that every month you are required to pay some amount to keep the system running. Because of this, the system is likely to face some serious problems as the demographic profile of the country tilts in favor of old people.
The percentage of retired people in the population is likely to go up for the next few decades. As lesser people remain in the workforce, the contributions made to the system will see a decline and the payments made will increase. This will put a huge strain on the Social Security system. When reserves start depleting, it will be just a matter of time before the whole system would gradually come to a halt.
This is a major concern for the younger generation, especially for those born after 1974, as the Social Security Trust will be fully exhausted by the time these people reach retirement age.
The growing budget deficit, increased life expectancy, rising inflation and increasing elderly population are some of the reasons that call for urgent action. It is estimated that younger workers who have fully contributed to Social Security throughout their careers, will only be entitled to about 70% of the benefits that have been promised to them by the government.
The Social Security Administration’s Trustees report states that massive annual deficits will start by 2017. From that year onwards, the cost of providing benefits will exceed income. More and more baby boomers reaching retirement age and applying for Social Security benefits will have a devastating impact on the system.
The debate over depletion of Social Security benefits is nothing new, and it has been going on for years. Analysts and policy makers have been discussing ways to ensure availability of these benefits to future generations. The need of the hour is for the government to react soon to the situation.
The government has several options, but all of them are going to be difficult. It can increase payroll taxes and reduce the current benefits to maintain a minimum level of funds in the system. Since Social Security Administration cannot be the only source of retirement income, people also need to be encouraged to start looking at supplementary sources of post retirement income.
On a personal level, you can start depositing a proportion of your personal savings in a retirement account like an IRA so that you are not completely dependent on Social Security. Thinking ahead will ensure a financially secure post retirement life for you.