The ratio of workers to social security recipients is low and expected to decline further
Social Security has been the cornerstone of economic security for nearly 90 years, but the program rests on shaky foundations. The Combined Social Security Trust Funds are expected to be exhausted by 2035 – just 13 years from now. A major contributor to the unsustainability of the current Social Security program is that the number of workers contributing to the program is growing more slowly than the number of beneficiaries receiving monthly payments. In 1960, there were 5.1 workers per beneficiary; this ratio fell to 2.8 today.
The fall in the worker/beneficiary ratio creates financial difficulties for Social Security. In 1960, the Social Security program had revenues of $12 billion and expenditures just under $12 billion. However, in 2021, the lower ratio resulted in expenses ($1.145 billion) exceeding revenues ($1.088 billion). As things stand, the gap between expenses and revenues will continue to grow. By 2034, the last year before funds run out, Social Security administrators expect costs to exceed revenues by $437 billion. When the trust funds are exhausted, benefits will be limited by income allocated to the program and, unless the law changes, benefits would be reduced by 20%.
Why is the ratio decreasing?
There are several reasons why the ratio of workers to beneficiaries has declined — especially changes in fertility, immigration and age of the population. Towards the end of the baby boom in 1960, the average number of children born to a woman was 3.6; by 2020, that number had dropped to 1.6. The fall in the fertility rate means that the active generation is decreasing compared to the beneficiary generation. Immigration also plays a role in the demographic landscape, as immigrants tend to be younger, have higher fertility rates, and participate in the labor force. However, the rate of immigration to the United States has declined in recent years. At the same time, more and more Americans are aging and living longer. In 1960, an individual who reached the age of 65 was expected to live to be 80; today, that person is expected to live to be 85.
How to sustain social security?
There are some variations as to what researchers think the minimum ratio of workers to beneficiaries should be – ranging from 2.8 at 3.3 — but all analyzes warn that its current decline signals an unstable source of funding for Social Security. If it is more difficult to change the components of the ratio itself, the program could be reformed to ensure a sustainable future.
The good news is that there are many solutions available to ensure the solvency of Social Security: raising the retirement age, decreasing program benefits or increasing the income dedicated to the program; continuing all together would probably provide the most durable and least painful adjustment for the future. For instance, estimates from the Congressional Budget Office (CBO) that raising the federal retirement age to 70 would reduce federal spending by $72 billion over the next few years (and increasing amounts thereafter). An example of a way to reduce benefits would be to link payments to average prices rather than lifetime earnings – CBO believes that change would reduce spending by $69 billion over 10 years. The legislator could also increase the tax rate or adjust the ceiling on income subject to social charges. For example, the current maximum taxable amount is $147,000, but CBO estimates that subjecting income over $250,000 to payroll tax would generate over $1 trillion in revenue over a 10-year period.
Social security is the largest item in the budget and a key contributor to the national debt; it is also an essential component of our economy and our society. Whatever policies lawmakers choose, if reforms are not passed quickly, recipients could see a sharp drop in their benefits. Since millions of people depend on Social Security, legislators must ensure that benefit payments are adequate for individual financial security, but also sustainable to ensure the solvency of the program.
Related: Five charts on the future of Social Security and Medicare
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