For many retired Americans, Social Security is a critical source of income. Data from the Social Security Administration finds that more than three in five retired workers rely on Social Security for at least half of their monthly income.
A big change is coming by 2020 that hasn’t happened in almost four decades
Who’s to thank for Social Security’s stability over the past eight decades? Look no further than the original architects of Social Security in the mid-1930s, as well as the Reagan administration in the 1980s, which passed major amendments to the program in 1983. The 1983 amendments included an acceleration of payroll tax increases, which generated more money for the program, the introduction of taxation on Social Security benefits if individuals and couples filing jointly earn more than $25,000 and $32,000, respectively, and a gradual increase in the full retirement age.
In the 34 years since the Reagan administration passed the 1983 amendments, Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust has seen its asset reserves at the end of the year grow from a meager $24.9 billion to $2.85 trillion as of the end of 2016. In fact, between 1998 and 2009, Social Security’s payroll tax revenue, taxation of benefits, and interest earned on its excess cash generated between $107 billion and $190 billion in added asset reserves per year for the OASDI. The last time Social Security paid out more in benefits than it generated in revenue was 39 years ago, in 1981.
But according to the 2016 Social Security Trustees annual report, the program will begin paying out more in benefits than it’s generating in revenue by 2020. Over the past four years, the net increase in asset reserves at the end of the year has shrunk to a range of $23 billion to $35 billion following more than a decade of more than at least $107 billion net increases in the annual reserve.
Who’s to blame?
Why the sudden switch from budget positive to negative, you ask? It’s actually a confluence of factors.
The most obvious reason why we’re seeing a reduction in the program’s annual net OASDI increase is the ongoing retirement of baby boomers from the workforce. Social Security’s architects in the 1930s could never have predicted the surge in baby births following World War 2. As boomers leave the workforce, the worker-to-beneficiary ratio suffers, meaning there aren’t enough new workers to cover the benefits being paid out to newly retired boomers.
Second, we’ve witnessed a steady increase in life expectancies over the past five decades. According to data from the Centers for Disease Control and Prevention, life expectancies have risen by roughly nine years over the past 50 years. This, along with…