This week’s CBTV show is entitled, “Running on Empty: Social Security’s Deficit and the Impact of your Future Benefits.”
Let me share with you some interesting history, current reality and future prospects on this important government program:
The Social Security Act was signed into law 76 years ago this week, by President Franklin D. Roosevelt, however no one is celebrating its anniversary in Washington. That’s because last year the cost of Social Security exceeded the program’s income tax revenue for the first time since 1983, running at a deficit of nearly $49 billion dollars. This year’s deficit is projected to be $46 billion dollars, and under current estimates, the program will continue to run at a permanent deficit, until all funds are exhausted in 2036.
FDR’s goal for Social Security, under the “New Deal” in 1935, was to create a social insurance program that provides Americans with a guaranteed income in retirement. It also set up a system of unemployment benefits, as well as providing income for disabled Americans. Funding for Social Security comes from the “Federal Insurance Contributions Act” tax, also known as FICA, which was established by FDR, as part of the “New Deal,” and collected through an employer’s payroll accounting process. The FICA collected tax is paid into the “Federal Old-Age and Survivors Insurance Trust Fund,” often referred to as the “Social Security Trust Fund.”
If the amount contributed into the fund is greater than the amount needed to pay out benefits, the excess is invested in U.S. government bonds and used for deficit spending. The U.S. Department of Treasury exchanges securities for the surplus funds, which can be redeemed at a later time if Social Security runs at a deficit. Social Security had built up a surplus of $2.5 trillion dollars in the 1980s, but much of that money has since been borrowed by the federal government.
In reality, the U.S. Treasury is the culprit who put Social Security into this predicament, by borrowing the excess revenues to pay for other less-funded government programs, or to reduce the national deficit. Making cuts in Social Security is not really solving the problem, because the government still needs to pay back what it borrowed from the fund!
The current Social Security system is clearly broken and needs a major overhaul. Of course many Americans could argue that the economy needs more help first. However, Social Security remains a major component of the current budget, accounting for nearly a quarter of federal spending. Not to mention that 78 million baby boomers will be tapping into this program over the next 20 years. Most Americans are wondering, “Will Social Security be there for me?” No one really knows for certain, or to what degree it will payout in the future. All you need to know and plan for is to not become too dependent on it, if you can.
My suggestion for you if you’re 50 years of age or younger, is to work hard, save more, spend less, invest 10% to 15% of your income every month into a retirement plan like a 401(k), or IRA, and live under your means. You can do it! Your retirement years depend on it!
I’d love to hear your thoughts on this important financial topic. Please send me your views about whether or not you think Social Security will be there for you. And why you feel that way. Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!
- Matt
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