Social Security Problems Accelerating
December 3, 1997
A recent General Accounting Office report warns that the long-term prospects for the Social Security system may be even worse than we think. It is already well-known that by 2014 current tax revenues will be insufficient to pay current benefits, and by 2029 the Social Security Trust Fund will be exhausted.
But demographic factors are accelerating Social Security's problems:
- Life expectancy is increasing faster than expected -- in 1940, a 65-year-old man could expect to live another 12 years, today it's 15 years, and by 2040 it will be 17 years.
- The fertility rate is falling faster than expected -- from 3.6 children for a typical woman of child-bearing age in 1960 to just two today and a projected 1.9 by 2020 -- and is already less than the rate of 2.1 needed just to replace the existing population.
- The elderly portion of the population is expected to rise from 12 percent today to 20 percent by 2050 -- increasing the number of retirees from 34 million to 80 million.
- The smaller working-age population and larger elderly population means that where there were more than five workers for each retiree in 1960 and 3.3 workers per retiree today, by 2030 there will be just two workers to pay the taxes for the benefits of each retiree.
Social Security is a pay-as-you-go system, with each generation of workers paying the benefits of current retirees. This works fine as long as the working population grows faster than the retired population, but now that the trend has reversed, the system is simply unsustainable. Thus a growing number of analysts favor moving Social Security toward a prefunded system by allowing workers to save some of their taxes in a private retirement account.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 3, 1997.
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