Social Security Outlook

Despite years of arguing about how to address the demographic problems facing Social Security, there has been no measurable progress. The nation’s old-age insurance program is still facing insolvency.

The most commonly suggested reforms include raising Social Security taxes and lowering benefits. If your retirement is a long way off, you might consider the possibility that Social Security may not provide a significant source of your retirement income. Here’s why.

In 1945, there were 42 workers per beneficiary. In 2007, the ratio fell to 3.3 workers per beneficiary. The ratio is expected to be only 2.1 workers per beneficiary by 2034.¹
If no changes are made to the system by the time today’s 36-year-olds reach age 69 (in 2041), benefits for all retirees would need to be cut by 22% from currently scheduled levels, with further cuts needed in succeeding years.²
In 2008, the average monthly retirement benefit was $1,079.³ Consider the effect of a 22% benefit reduction: It would bring this amount down to $842.
Although the average Social Security benefit will have a higher dollar amount in 2041, it’s likely that, in real terms, the spending power of the average benefit will be about the same as $842 in today’s dollars.

Of course, anything could happen by the time you become eligible for Social Security retirement benefits. But until the system is fixed, it might be a good idea to scale back your Social Security expectations and seek ways to make up the potential shortfall through increased saving and investment.

1–4) Social Security Administration, 2008