Social Security is one of the most successful social
programs in America. Due to this feature, it does not mean it is invulnerable
to problems. According to the latest report, it is stated that this program is
less than sixteen years from huge trouble. This program is going to spend more
in the year 2020 than it generates the first in-revenue since 1982. Of course,
it will grow exponentially according to the size with each crossing year. it is
estimated that in future, the nearly $2.9 trillion in asset reserves that this
program has been made from its inception, which is recently invested in
specialty-based government bonds, may get a toll or will be wholly exhausted.
Is Social Security going to be penniless? We don’t think so.
There is a combination of factors that may answer this question, so, start reading
them:
Boomers are quitting the staff at a steady rate
Although, it is a fact not to avoid that baby boomers have
started to quit the workforce in great numbers. Consequently, it has affected
the worker-to-beneficiary ratio. In 2018, this ratio was 2.8 to 1. As the time
will roll on, it is anticipated to see this ratio as 2.2 to 1. It means that
not enough new employees are entering the workforce and/or not adequate grossed
income being taxed to stabilize the departure of baby boomers from the labor
force.
Inequality in income
Most of the people blame the income for this big mess, of
course, they have a reason too. It is to be seen that this program’s workhorse,
there is a 12.4% payroll tax on the income people earned, which is applicable
on earnings of up to $132,900 in the year of 2019. We cannot deny the thing
that this cap essentially increases per year according to the increase in the
percentage of the National Average Wage Index. There may be an exception, which
is about when the cost-of-living adjustment is negative and it has occurred
only 3 times since 1975.
To illustrate more, understand the problem. More than 9 out
of 10 employees will make money less than $132,900 in the year 2019, which
means that they are giving taxes on every dollar they make. In the meantime,
the single-digit percentage of employees who will make money above $132,900
possess every dollar beyond this figure discharged. From this thing, it is
concluded that billionaires could have most of their income as an exemption
from payroll taxation. According to the SSA, it is estimated that $1.2 trillion
in received income exempted taxation in the year of 2016, which costed the
program in lost revenue, which is $150 billion approximately.
Increased people’s longevity
It is good to see that people are living longer. It is all
due to medical care and the improvement in preventive medicines. The health
sector including pharmaceutical companies is making hard efforts to give better
medicines to people to treat a wide range of diseases. It has affected the life
expectancy of Americans positively. When SS started making monthly payments in
1940, a man lived 62 years and a woman lived 67 years as an average from birth.
But if we see the combined data, then the average citizen of America is
surviving more than 78 years as of now. Of course, it is great news that people
are spending more time with their family and friends.
But when it comes to Social Security, it is not good news
for this program as it was developed with the motive that senior citizens who
could no longer offer for themselves would lean on this program for a few
years. As it is clearly seen the increase in the life expectancy of people in
America, it actually drained the Social Security program to a great extent.
The problem developed due to low birth rates
These days, there has been a huge reduction in birth rates. As
the data is collected from the National Center, it has been seen that the lifetime
women fertility rate has got a hit with a low figure in 2018 as there are 1.73 births
for every woman. What is the reason behind getting the birth rates reduced? To
examine this in more detail, many studies have been conducted and it is deduced
that millennials are postponing marriage to a great extent than previous
generations. This is the main reason why the timeline of beginning a family is getting
reduced. It is also suggested that increased utilization of contraceptive pills
has deceased unwanted pregnancies.
Clearly, if there are only a few births, then there will be
less or fewer workers to get employment on the basis of replacement to those
who are going to retire or retiring. Of course, it has impacted the
worker-to-beneficiary ratio and thus, Social Security.
The interest-earning potential is hurt by Dovish Fed Policy
The central bank of America is tasked with the management
and control of the monetary policy. Fed has access to some tools, which can
adjust the lending rate between banks in the overnight. This is why this
activity can impact the rates of interest that people pay on revolving accounts
like credit cards. Of course, the Fed has influenced the economy after selling
or purchasing Treasury bonds. By this, we need to understand the thing that the
primary interest of the Fed is to maintain steady growth and rates of inflation
that is not always simple for anyone.
When it comes to Social Security, it is needed by law to
make an investment of it’s nearly $2.9 trillion in the asset reserves in the
special bonds issued by the government. The yields on such bonds are linked to
actions acquired by the Fed. For years, the Fed has exceptionally remained
dovish, it has led to a reduction in the income of the interest gathered by the
Social Security on the bonds it acquired.
Due to these problems, the program of Social Security is in
huge trouble that may or may not end soon in coming years if not balanced well.
