If you don’t know how OASI works, please read my first article in this series, How Social Security Works.
It should be common knowledge by now that Social Security has a massive surplus. This money is borrowed by the government as one of the largest parts of our government debt, accounting for over $2 trillion and is paid an interest rate which is about the same as inflation.
This happens because the Federal Government has received more money than it has paid out to retirees over the last 40 years due to the technology revolution we are in.
This is not going to last. Social Security will soon get as much from tax revenue as it pays out to retirees due to being an aging country, and it will never run a surplus again. The surplus in 2020 was only $2 billion, or $6 per person.
The Social Security Trust Fund is going to be fully depleted by 2037 unless we make some really drastic changes.
I don’t plan on retiring (unless if I get very lucky) until 2057.
As you see, this is a problem.
There are realistically 7 ways we can solve this problem, and I am going to go through the pros and cons of each.
Raise taxes
The easiest way to solve this problem without changing the way Social Security works is to raise taxes.
We can remove the cap on Social Security Wages, but this will be impossible to do politically because only 15% of the taxes you pay on income above $75,000 annual income counts for benefits. It also won’t solve the problem. Have fun.
We can increase taxes on the middle class. The problem is that someone who makes $50,000 per year is already paying an effective tax rate of 12.8% for retirement benefits which only add up to 25% of their salary, which is not enough to live on. Increasing taxes on the median household, without increasing their benefits, for a program which already doesn’t pay enough for them to survive in retirement to a level which will save our current system is political Kryptonite.
Have fun.
Adjust spending
We can move Federal Spending from other places!
You can try to convince Republicans to switch money from the Department of Defense to pay for OASI. Have fun.
Or we can move money from Medicare/Medicaid and education assistance to pay for a program which only pays for 1/4 of people’s pre-retirement income.
Have fun with that.
Issue more bonds
Since the United States has its own currency we can just issue more Federal Debt to cover the Social Security system. This could have major impacts on the value of the United States Dollar given the scope of the problem. It’s not a wise solution.
The other option would mean higher taxes for Millennials when we are older, defeating the purpose. Paying higher taxes in the future to cover a program which is designed for our retirement but doesn’t pay enough to cover basic living expenses.
Have fun with that.
Reduce benefits
We can gradually reduce benefits on retirees until benefits are almost nothing. This will be the biggest fuck you to Millennials imaginable. Any politician who makes a real attempt to do this to a point where it will actually help will be voted out by my generation for ruining our future.
This is not possible to do.
Superannuation
We can allow people to get out of the system and give people the option to do a system like Australia or Singapore. Australians are the richest people in the world with their current system. This will mean that Millennials will get something for retirement, and not have to pay tax rates of 15% or 20% of our income (which will cut into our ability to save for retirement) to only get a retirement income which will be barely enough to pay our property tax or rent without covering our food. It will also mean fewer of us will need forms of welfare in retirement, saving a significant amount of money for state governments.
This could actually work.
Republicans sometimes talk about this solution, and have done it for decades. But even though they had opportunities to do this from 2003-2007 and from 2017-2019 they have never proposed a serious solution to it, instead giving massive tax breaks to millionaires as a precursor to defund investments in the United States. They have never been serious about this solution.
Foreign Workers
Have fun convincing Republicans to have hordes of foreign workers coming into the United States to save welfare.
As soon as Republicans get power again, this program will end, meaning it won’t save the current system.
Invest the Social Security Trust Fund
We can invest the Social Security Trust Fund into municipal bonds and the stock market so it can grow. This will at least postpone the point where we have to make more decisions in order to allow millennials to retire comfortably.
If we did this 30 years ago, this post would never have been written, and we could cancel the payroll tax today and pay out the beneficiaries for today’s seniors without ever touching the general fund.
Unfortunately neither party is serious about actually protecting the retirement of Americans given their actions. If your employer doesn’t offer a 401k you are more or less on your own. You can choose to do a tax deferred IRA, which is a lot better than nothing, but will force you to work until you are 65 unless you make enough money to have another fund on top of that to save for early retirement or work in one of a few professions like fire fighters who can retire at 55.
It still doesn’t address the issue of how OASI only pays for 25% of pre-retirement income however, and just maintains the current system where many Social Security retirees need welfare in order to survive.
Millennials like myself need to know that when we turn 65 we will be able to retire comfortably.
The longer we wait to solve this problem, the more expensive it will be.
We need a solution.
We need it soon.