NCPA - National Center for Policy Analysis

Good News: The End Is Farther Off

March 31, 2000

Responding to the new report by the Social Security trustees that the system's trust fund has an additional three years of solvency, NCPA Senior Scholar Dorman Cordell warns that "Our fast growing economy has helped delay the inevitable. But....even the most robust economy is not going to solve the demographic dilemma facing Social Security."

The current Social Security system is "pay-as-you-go" -- today's workers pay the benefits for today's retirees. Unfortunately, the ratio of workers to retirees is decreasing and will continue to decrease because people are living longer and are having fewer kids.

  • For example, in 1945, two persons were collecting benefits for every 100 workers paying Social Security tax.
  • By 1999, this number had increased to 30 beneficiaries for every 100 workers.
  • And the Social Security Administration projects that by 2075, there will be 54 persons receiving Social Security benefits for every 100 persons paying into the system.

Cordell says the best way out of the demographic dilemma would be to allow workers to invest a portion of their payroll tax dollars into private accounts invested in the private capital market. This would create a self-funded system.

The NCPA's online benefits calculator shows people what they will pay in taxes, receive in benefits, and would have received if the same dollars were invested in a private account.

For example, a 25-year old waitress can expect to pay more than $300,000 (in real terms) in Social Security taxes by the time she retires, but her lifetime benefits will be little more than half that amount. Her monthly Social Security benefit will be $920 in today's dollars, compared to a private pension of $2,303 if her taxes had been invested in stocks and bonds.

Source: Press Release, "NCPA Says Social Security Trustees Report Poses Danger of Complacency," March 30, 2000, National Center for Policy Analysis.

 

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