Why is the Social Security System in Trouble?

Social Security is a "pay-as-you-go" or "pyramid" system

• Tax dollars collected today go to pay the benefits of people who have retired.
• The extra Social Security tax dollars that the government collects are immediately used for other government programs.
• When the government "borrows" those extra dollars, it writes an IOU to itself.
• The collection of IOUs is called the Social Security Trust Fund-but there is no money there, just the IOUs, called bonds.
• To pay those IOUs by the time you retire, the government will have to raise taxes or borrow money.

Demographic changes have accelerated the failure of the currents system

• When the program started in 1935, there were 43 workers for every retiree. Today there are 3.3 for each retiree, and in 20 years there will be only two workers for every retiree.
• Since we live longer today, we collect far more from the current system than we did in years past.
• In 2018, when the baby boomers start to retire, the federal government will collect less in Social Security taxes then it pays out.
• Congress will have to raise taxes by 18 percent of wages or cut seniors' retirement benefits by one third.

Overall, the current Social Security system is a bad deal for American workers

• With a level of 12.4 percent in taxes, combined with low retirement benefits, Social Security today is akin to getting a very low rate of return on a savings or investment account.
• Getting Social Security today is like earning barely 2 percent on a savings or investment account.
• For some workers, the return on years of Social Security taxes will be the equivalent of less than 1 percent on their investment or savings account.
• For many, it would have been better to put the money in a mattress than pay it into the Social Security system as it is designed today.

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