Fewer and Fewer Workers to Support Baby Boomer Social Security

Category: Baby Boomer Retirement Issues

June 26, 2018 — One of the pillars of Social Security funding is that each working generation pays the retirement benefits of those whose working years are over. A key assumption is that there will be plenty of working age people paying into the system to pay those benefits. Unfortunately, the ratio of working age adults to those on Social Security is going in the wrong direction. Back in 1980 there were 19 U.S. adults age 65 and over for every 100 Americans of working age. Thirty years later, that old-age dependency ratio had hardly changed; it was 21 retiree-aged Americans per 100 workers in 2010.

Declining birth rates since 1970 and the retirements of millions of baby boomer have changed that equilibrium – fast. The retirement segment to working population ratio was 25 to 100 last year, in 2017. By 2030 the Census Bureau projects that the ratio will soar to 35, and might even get to 42 by 2060.

Think it’s bad here – look overseas
The USA is not the only country with a rapidly aging population. Things are far worse in countries with very low fertility rates and limited immigration, according to the Census Bureau. By 2025 for example, when the U.S. ratio will be 33, Canada’s will be 40, Germany’s 44, and in Japan, 58. By contrast, the ratio will only be 13 in youthful Mexico.

Affects on the Social Security System
Reserves built over time can help buffer highs and lows. For example, Social Security built up substantial reserves during boomers’ working years. Unfortunately, as 10,000 boomers turn 65 every day, the system is now going into deficit mode; this year for the first time more is going out in benefits than coming in on a cash basis. The Trustees’ 2018 estimates are that reserves will be exhausted for the retirement portion of the system (OASI) by 2034, while the disability portion (DI) will run out by 2032 (good news for DI, that is 4 years later than projected in 2017). When the reserves are gone the system will only be able to pay a portion of promised benefits, unless something else happens.

State pension funds in trouble too
According to data by the Pew Charitable Trusts, state pension funds also face substantial shortfalls. That is bad news for anyone expecting a state pension, or who will have to pay taxes to meet those obligations. Pew projects that states only had $2.6 trillion in assets versus liabilities of $4 trillion in fiscal 2016.

More from SS Trustees
(The information below is reprinted from Social Security’s “Summary: Actuarial Status of the Social Security Trust Funds” – June, 2018)
Beneficiaries and Benefit Payments
At the end of 2017, the Social Security program was providing monthly benefits to about 62 million people: 51 million from the OASI Trust Fund and 10 million from the DI Trust Fund. Total benefit payments for the year (excluding payments to the Railroad Retirement Board) were $941 billion: $799 billion from the OASI Trust Fund and $143 billion from the DI Trust Fund.

Sources of Trust Fund Income
During 2017, an estimated 174 million workers had earnings covered by Social Security. Employees pay a 6.2 percent contribution from earnings up to a maximum of $128,400 in 2018, which their employers match. Self-employed workers pay both shares of the contribution, or 12.4 percent. More than 40 percent of current beneficiaries pay income taxes on part of their benefits, and those taxes go to the OASDI Trust Funds and Medicare’s Hospital Insurance Trust Fund. The trust funds also earn interest ($85 billion in 2017 for the OASDI Trust Funds) on their accumulated reserves.

Comments? Please share your thoughts in the Comments section below.

For further reading:
Social Security Trust Funds Summary
Wall Street Journal: Retiring Boomers Leave Fewer Workers to Support the Elderly




Posted by Admin on June 26th, 2018

39 Comments »

  1. When I began working in 1980 as a professional, my generation too thought that Social Security would never be there for us. Before I knew it the years have gone by and now I qualify for social security. Adjustments were made in my working years to keep SS viable. I am hoping that our government will raise the limit on the income levels that must pay into the system This would help immensely as well as tightening the requirements for those who receive the benefits. Too many people receive SS who have never paid into it. Millionaires too receive benefits while others use SS just to survive from day to day.

    by Jennifer — June 27, 2018

  2. Believe it or not there is a formula used to calculate the increases in income levels and were SS payments stop. Folks that believe that SS should be paid on all income, as there would be a flush of revenue, remember payments going out would need to be increased to those individuals when they retire. If that doesn’t happen then you created a large entitlement program. I believe that hard decisions will need to be made and no matter what course is taken some folks will either pay more in taxes or increasing the age in which you receive benefits, some people will be affected and not happy.
    A good emigration policy allowing people to come to the country for work could help, as we have many jobs that could be filled, which would directly impact the ratios stated in the article.

    by Bruce — June 27, 2018

  3. We’re at full employment now.

    by Dan O. — June 27, 2018

  4. We may be at low unemployment levels, but many people are working for very low wages so they’re not contributing a lot to SS.

    Bruce, you’re right that SS is structured so that if the income level for contributions was raised above $128K those who pay in above those levels would be entitled to more in returns, however, they would not receive it commensurate with what they pay in.

    One’s top 35 years of earnings are averaged out, and while this number determines the Social Security benefit, it does so on a sliding scale, using “bend points.” Dollars at the high end count roughly 1/6 of what they count at the low end.)

    Here’s a link to the very convoluted formula: https://www.ssa.gov/oact/progdata/retirebenefit2.html

    Bottom line – yes, it would help SS if the $128K ceiling was raised – or abolished altogether.

    by JCarol — June 27, 2018

  5. Bruce, SS and Medicare for that matter, are NOT entitlements! That is money we paid into that we EARNED! Corporate welfare, now that is an “entitlement “, and a subject for another time.

    by Kathy — June 27, 2018

  6. I’ve brought this up many times before in discussion….all to deaf ears. Automation and globalization, The combined effect is that a “forward-looking” generation of workers will not be supported by a working group of people paying into the system. When companies or institutions look at the “bottom-line” in making foreign out-sourcing or automation decisions…they fail to take into account the actual, live, humans being absent from the group that “pays-in” to the social safety net. That becomes a social problem with increased costs to everyone.

    by Wil Ferch — June 27, 2018

  7. Most of us have paid into social security, so in that sense, it is not an “entitlement.” However, if you look at what you and your employer have paid in, those funds are often spent after a certain amount of time (can’t remember the exact average number of years–I think between 5 and 7) and after that, the money is coming from the younger generation. And we all have to remember that there is no bunch of money sitting anywhere anyway. What we have are IOUs that have to be paid by the federal government back into Social Security, and guess where that money comes from–either we borrow it or we pay it in taxes. Unfortunately, I think there will be push-back from the younger generations at some point and we will end up with generational “budgetary wars.” There is already some book that claims that everything wrong with the country is because of the boomers. That is nonsense, but a lot of younger people have a fuzzy grasp of history, so it is tempting to look for an easy explanation instead of examining the complex web of circumstances that have gotten us here. I think we are just going to have to face the fact that pain is going to be shared all the way around. The question is how best to do this with fairness and compassion for ALL those concerned.

    by Cheryl — June 27, 2018

  8. A point of clarification to those saying I said SS was an entitlement. I stated if you take the income limits off, when those high earners retire they would be entitled to the same payout formula as everyone else and receive high payout amounts. If the formula is different for high earner and not others, then you are creating an entitlement program.

    by Bruce — June 28, 2018

  9. Jennifer- who is receiving SS benefits that never paid into it it, as you sated? I paid into SS beginning at age 16 but cannot collect my full benefit because I receive a small teacher pension from the state of Maine. I worked many other jobs before and during my 34 years of teaching – enough to qualify for almost 1000.00 monthly benefit. Instead I get 51.00- so who is receiving a benefit that never paid into the system? If the government had not robbed the SS funds years ago, would we be in this situation? Pay that back before building a wall…with interest please!

    by Sandyz — June 28, 2018

  10. Sandy Z, I agree with you. I have also paid ss from age 16 from many different jobs, and am now collecting a partial state teachers retirement pension after teaching 36 years, half in a Catholic school in which I paid ss. I am getting a very small ss benefit since my husband recently passed away. It upsets me every time I think about all the money my husband and I paid into ss. He never benefitted at all and what I receive is ridiculous.

    by Patty Field — June 28, 2018

  11. Sandyz, I am with you on your comment. First, there are lots of people on ss that didn’t pay into it. Eg, spousal survivors who never worked themselves. My biggest issue over the years is what you mentioned regarding the regular raids on the trust fund and the simultaneous overly conservative investment strategy. Bush 43 tried to fix the latter by adding some private investment options but was blocked from implementing it. The trust fund clearly hasn’t kept up due to these risky decisions. It was our money!

    by Dan Dawdy — June 28, 2018

  12. Dan,
    Aren’t we fortunate that the Trust fund was not invested in the stock market in 2007 and 2008? First real estate collapsed then banks, insurance etc. and the worse crash in living memory. Had Bush’s plan been implemented, we may have been in much worse shape. There are leaders in the House and Senate who would still like to privatize the system. We need to keep it conservatively invested via the current system.

    by Emma Sell — June 28, 2018

  13. This is an excellent article that discusses the complexities, myths, and problems associated with Social Security. We really like the title, “Fixing Social Security Starts with Us, the Voters”. So true. No one has “stolen” or “raided” Social Security funds, as conspiracy theorists mistakenly believe. The essence of the problem is that neither we the voters nor our politicians are willing to take on the pain that comes from too few workers combined with people living longer lives than anyone predicted. See https://www.marketwatch.com/story/fixing-social-security-starts-with-us-the-voters-2018-06-25

    by Admin — June 30, 2018

  14. Well, this is sort of an excellent article. It does not discuss any possible solutions to the problem. We can keep saying there is a problem (which there is), but I don’t think that’s productive. How about proposing some possible solutions? Raise the low cap on earnings. Raise the percentage deducted from earnings. How about some numbers on what those potential solutions would do? Other potential solutions?

    by Linda — July 1, 2018

  15. Although the SS fund, like most if not all state pensions, has not been directly withdrawn from, it has been spent by the federal and state governments to balance their budgets. Unlike you and me probably, there are no CD’s or “savings accounts” where all the money languishes earning a pittance and waiting for the rainy day (retirement) to be withdrawn. I believe that the way it works is that the funds that are collected are used to buy government bonds which provide the feds immediate operating money. So to say that they have not “raided” a massive savings account is true, but to say they haven’t spent our money is wrong. To label it “social security” and make folks feel all warm and fuzzy as they look towards their golden years is misleading and wrong, in my opinion. There is no pot of gold, there is only a bunch of I.O.U ‘s …please correct me if I am misunderstanding my research as I am not an economist. Does anyone know if those government bonds are actually paid back upon maturity and at what interest rate?

    by SandyZ — July 2, 2018

  16. https://www.cbpp.org/research/social-security/policy-basics-understanding-the-social-security-trust-funds

    SandyZ I thought Maine teachers did not pay Social Security but paid into the Maine Public Employees Retirement Fund?

    by Debra — July 3, 2018

  17. SandyZ – I don’t fully understand how public pensions work with people who’ve also contributed to SS, but presume you would have the option of receiving whichever is the higher of the two benefits, but cannot draw both, is that correct?

    by JCarol — July 3, 2018

  18. To Debra and JCarol – only 14 states deny their teachers the ability to receive a state pension for their public service years AND their EARNED SS benfefits, as well as Survivor benefits that our spouses have earned. In my working years I worked full time for private businesses before becoming a teacher – and as many other underpaid educators, I also worked summers for private businesses. In all of these positions, I paid into SS. Enough to collect a decent monthly benefit IF I had not been a teacher in Maine. 36 states allow retired teachers to collect both benefits which they paid into over their careers. As we attempt to fix SS let’s fix this inequity too.

    by Sandyz — July 3, 2018

  19. Linda- here is a calculator that allows you to see what effect benefit and revenue changes would have on keeping Social Security solvent. http://www.crfb.org/socialsecurityreformer/

    by Mike — July 4, 2018

  20. Mike – TX 4 the link. OBTW, just a side note to yours and not mentioned in your link background – https://www.theatlantic.com/business/archive/2016/09/undocumented-immigrants-and-taxes/499604/ – is probably why the Illegal situation will never get corrected, otherwise …?

    by Rich — July 4, 2018

  21. SandyZ asked an excellent question about the Social Security Trust Funds – “To label it “social security” and make folks feel all warm and fuzzy as they look towards their golden years is misleading and wrong, in my opinion. There is no pot of gold, there is only a bunch of I.O.U ‘s …please correct me if I am misunderstanding my research as I am not an economist. Does anyone know if those government bonds are actually paid back upon maturity and at what interest rate?”

    There is a lot of “fact-free” information out there that the government has somehow spent all of the money put into Social Security and that is all gone. We feel it is important for us to let people know the real facts from reputable sources. This summary from last year’s SS and Medicare Trustees Fund should be helpful in explaining what happens with the money paid into Social Security.

    “What Are the Trust Funds? Congress established trust funds managed
    by the Secretary of the Treasury to account for Social Security and Medicare
    income and disbursements. The Treasury credits Social Security and
    Medicare taxes, premiums, and other income to the funds. There are four
    separate trust funds. For Social Security, the OASI Trust Fund pays retirement
    and survivors benefits and the DI Trust Fund pays disability benefits.
    For Medicare, the HI Trust Fund pays for inpatient hospital and
    related care. The Supplementary Medical Insurance (SMI) Trust Fund
    comprises two separate accounts: Part B, which pays for physician and
    outpatient services, and Part D, which covers prescription drug benefits.
    The only disbursements permitted from the funds are benefit payments
    and administrative costs. Federal law requires that all excess funds be
    invested in interest-bearing securities backed by the full faith and credit of
    the United States. The Department of the Treasury currently invests all
    program revenues in special non-marketable securities of the U.S. Government
    which earn interest equal to rates on marketable securities with
    durations defined in law. The balances in the trust funds, which represent
    the accumulated value, including interest, of all prior program annual surpluses
    and deficits, provide automatic authority to pay benefits.”

    For the record, the Trustees estimate that all of the SS reserves for retirement will be exhausted by 2034, at that time the only money able to be paid out will be in new contributions for current workers.

    by Admin — July 4, 2018

  22. Scary is it not when you think about SS. No one seems to be able to give retirees a definitive answer. SS was first enacted as a supplement to aid retirees only in retirement years. Then it became SSD, social security disability. Then when a parent passed away and had children under 18 they were given SS. Then if a man retired at 62 and up and had minor children they were given SS until the child or children were out of High School. The more SS is used for everything but it’s original purpose it will run out. I probably left out more and we wonder why we hear SS will be out of money in 2034.

    by Ginger — July 5, 2018

  23. I will admit…I don’t understand all of this very well, but I do know I will need what little SS I get. I had a job with a pension, at a major airline. Before I was able to earn my full pension (I think I’m vested now at about $5.00 a month!)
    I had to stop working. From breathing the diesel fumes (that’s everything, equipment fuel and jet fuel is basically a more refined diesel fuel) I developed breathing problems. I was allergic to the fumes and they were quickly destroying my lungs. My physician said that if I wanted to live I would need to stop working that job immediately. I did. I stopped working, only to find out that days later my company went into bankruptcy. No lawyers would touch my case because of the bankruptcy and now I have nothing BUT SS. My lungs have continued to deteriorate and I haven’t been able to work since. I decided not to get SS disability as I didn’t want to be another drain on the system. My wife was still working and we felt that we would just do our best to get by. Now, I’m old enough to collect SS and I’m grateful for what little is there. I wish there was more, but it is what it is. I just hope my wife and I can continue to get by and it doesn’t totally dry up. Maybe if the country wakes up and realizes we are killing our work force daily. The increases of automation push people out. Things like Amazon are amazing at making life easy but are closing our brick and mortar stores by the dozens. Simple things like computerized records take away file clerks. My biggest pet peeve, sending jobs overseas. Call centers in Mexico, India and the Philippine Islands. Little to no manufacturing. Big money is “saving” money by farming out the jobs, not realizing they are killing their own customer base. Who is going to buy their wares if no one is working? SS…? Seems like the least of our problems.

    by Dave — July 6, 2018

  24. Dave, sorry to hear about your breathing problems and needing to leave your job. However, it would have been wise for you to take SS disability when you had become disabled. That is what the program is all about. You paid taxes while you worked and that is what the program is designed for. Not just retirement income. Yes, the system does seem stretched thin. I happen to know two sisters who both lost husbands in the last few years and each has two children. They are receiving benefits till the kids age out. The money is a Godsend to these families. Best wishes on a healthy retirement.

    by Louise — July 7, 2018

  25. If Roosevelt had passed the law today, the starting age would be around 80 years old, due to longer life expectancy.

    by Peder — July 7, 2018

  26. Social security is not in trouble! Our current government is the trouble! Over 65% of our tax dollars arecwastefulky spent on military and its wasteful entitlements! There is plenty of money for all of properly allocated
    Further the contribution should have no cap! The more you make the more you contribute this is the way most corporations charge for their healthcare programs
    Seniors must unite around this specific issue and vote against all who threaten social security and Medicare!

    by Ron — July 7, 2018

  27. Louise, thanks for your kind words. As I mentioned, I didn’t take disability, not wanting to be a drain on the system. SS would last much longer if others felt this way, but I understand, I paid into it, I deserve it. Fortunately I am very blessed to have a spouse who was well enough employed and frugal that we should be okay with my minimal SS. Let’s hope anyway!

    by Dave — July 7, 2018

  28. Ron is absolutely right. I won’t go off on a tirade, but this subject is something I could write for hours about. Sufice to say, if seniors (and anyone else who expects that they will need SS in the future) would band together and demand action, this could be solved fairly quickly. Unfortunately, those of us who need SS don’t have money enough to make substantial campaign contributions so that we can be heard. But we do each have a vote which is ultimately what these politicians need to keep their jobs. Seniors uniting around this issue could make a huge difference as there are more of us every day and our numbers will continue to grow for a long time.

    by Mark M — July 7, 2018

  29. Dave, your intentions are admirable but I don’t think one person not taking SS disability would make much difference. I personally have not needed SS disability but I have used ACA. I have kept my income low so I could get the subsidy. I have been on it since 2015 and will be off it at the end of the month going on Medicare. I was on unemployment the last time for 73 weeks and two other times, 26 weeks each when I was laid off from these jobs. I did nothing illegal and followed the rules in every situation. The programs are in place for us to use and to use them properly. I have no regrets for using these programs. I am sorry you didn’t take advantage of SS disability when you needed it but you did what you felt was important to you. Lucky you had another source of income to tide you over. Another thing I just did was to prove my income to my town to get a senior discount on my taxes. We qualified for $960 off per year. This is the first time we were qualified and one of us had to be 65 to qualify. We should get the discount for two years then we plan to increase withdrawals from IRA’s which will put us in a higher bracket and over the income cliff.

    by Louise — July 7, 2018

  30. I have purchased the gold plan through Christian Healthcare Ministries and the catastrophic plan as well. The gold plan is $160.00 per month and the charges over $500.00 are cover by the sharing of the Coop. The Catastrophic Plan is $$40.00 per year and $25.00 per quarter. I listened to Dave Ramsey who has a You Tube channel and a radio program daily and it was recommended through him. I was convinced to give it a try after speaking to a few businesses who changed over to this sharing type of plan. Everyone was very satisfied. With traditional insurance there can be up to a $5,000 deductible before any benefits kick in–as a nurse I saw plenty of that. Many people called our office to ask how much their lab work and other procedures would be because they did not have the money to pay thousands before their insurance picked up the benefits. What good is insurance if you have to pay a VERY high deductible before they cover anything???? This keeps people sick and by the time they see their doctors, many are in very bad shape. With CHM, I can choose my doctor and they encourage one to get well before worrying about the financial side of illness and accidents. I got a discount pharmacy card (but I do NOT use nor adhere to big pharma) and that will help just in case… I intend to use CHM as my secondary insurance when I go on Medicare in two years.

    by Jennifer — July 8, 2018

  31. I do not beleive the military budget is the problem. You have to have a strong, well equipped military. Yes, there is waste and abuse however, a lot can be blamed on how goverment contracts are written and the substaintial overhead goverment contractors charge back to the government. The military is moving toward more commercial off the shelf items versus having everything built to a ridiculous government specification. There are plenty of military purchases that do require being to a certain spec, however, not every item.
    Social Security should be there for those who retire or become ill and cannot work. Again, like everything some people will take advantage of it and find ways to get benefits such as disability that they do not need or qualify for. More oversight and scrutiny of the disability program would help alleviate that. If you really qualify for disability you should take it. You earned it.

    by Karl — July 8, 2018

  32. Louise, I am just reading these posts and just want to point out that Social Security Disability is only available to those who are unable to perform ANY job. So, for example, if a person who was employed in a construction job is able to work a desk job, they cannot collect Social Security Disability, though they may be eligible for Worker’s Comp, or a civil lawsuit if injured on the job.

    Dave, I agree with you and sorry about what happened to you.

    by Maimi — July 8, 2018

  33. Would there be more $$$ for Social Security if we trimmed down our very generous salary, benefits, and allowance for Senate and House members? $174,000 is way above the national average salary and probably much more than the income of most of the constituents whom they represent. They also receive an excellent guaranteed retirement pension at a time when most private companies no longer offer pensions. Maybe we should offer them a salary with deposits made from taxpayers only when they actually pass a bill! And a bonus deposit into a 401K plan for retirement if they actually balance the budget!

    by Sandyz — July 9, 2018

  34. Sandyz, that salary is not too much if we want well qualified, educated people to work for the country.

    by Maimi — July 9, 2018

  35. Miami, you are right about their salaries. On the other hand, a lot of people who go to Washington on our behalf start out poor, but they sure don’t stay that way for very long. Funny how that works out, isn’t it?

    by JCarol — July 9, 2018

  36. There are 535 members of Congress x $174,000 = a little over $93mil. Total OASI budget for FY 2017 = $813bil. The total annual salary for all Congressional representatives and senators amounts to 0.01% of social security administration spending, barely a rounding error. So even if you eliminated their salaries altogether, it wouldn’t put a dent in SS benefits. If you raise or eliminate the salary cap on SS taxes, as has been suggested in other posts, then you would correspondingly have to increase benefits; so more income, but also more expenses. Benefits are already skewed to lower income beneficiaries, ie those who pay more into SS receive less benefits relative to their contributions. It is going to take a combination of actions to keep SS, Medicare, etc, not to mention vital activities like national defense, viable. However, our legislators haven’t shown the political will to make them happen. And quite frankly they won’t until the public demands it. But we have to have realistic expectations; it can’t be everyone expecting “the other guy” to pay more in taxes or accept less in benefits. Everyone has to have skin in the game and share in the responsibility for making us financially whole.

    by Partagas — July 10, 2018

  37. Well said Partagas. No easy solution for this complex issue. It just makes sense that when all us Baby Boomers were working we build the trust fund surplus. Now of course with 10k of seniors taking their SS the reverse is happening more folks taking benefits and fewer folks paying into the system. Solutions are limited, increase the SS tax, increase the FRA, reduce benefits, or revise the formula SS uses to calculate the wage cutoff. However, u cannot just take it off.

    by Bruce — July 11, 2018

  38. A well-known and established rule in investing is diversification. This spreads risk and reward across asset categories. SS has been too conservative, aiming to lock in safety and predictability of performance, which is “warm and fuzzy” for some but actually a negative due to underperforming, relative to long-term recipient needs.
    Privatizing at least a portion of the fund would have allowed better return over time. Too bad that hasn’t sunk in yet.

    by Dan Dawdy — July 12, 2018

  39. We moved this comment from a different blog:

    The FICA/Social Security cap on earnings subject to the SS tax is highly unfair to workers earning under at least six figures and gives a huge break to those earning over $128,700 annually. It essentially requires those making less than that to subsidize the wealthy. Certainly not fair. The earnings cap needs to be in some way adjusted upward, and, if so, could cover most or all of any projected SS shortfall. Also, wealthy people receiving SS could be taxed on more of it. Right now, if you are wealthy enough and receiving SS, you pay tax on up to 85% of SS payments. That could be raised to 100% and would only affect the well-to-do. Neither of these scenarios would cut SS benefits, even for the wealthy. But our current Congress and administration do not want to increase the SS cap or raise the taxability portion even minimally since it would put a slightly higher burden on richer folks

    by Jane at Topretirements — September 23, 2018

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