Dhaka, Bangladesh
Social Security’s looming shortfall

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Social Security’s looming shortfall

“Sometimes I worry that if I ever can retire and do get Social Security payments, they’ll be a lot less than what I’ve been promised,” I said to my CPA, Louie the Number Cruncher. “There is some reason to worry, Tommy. According to the Social Security trustees’ latest report, the two trust funds that support the program will run out of reserves in 2035. If that happens, beneficiaries like you will get only 80 percent of the benefits they’re owed.” “But I thought Social Security was an insurance program, not a typical government program!” “Well, Tommy, when FDR signed it into law in 1936, it was considered an insurance program. Workers contributed money to it through income taxes. When they retired, they drew money out.” “So how can the government arbitrarily cut my benefits?” “The Supreme Court ruled long ago that policymakers could change Social Security’s benefit formula to reflect shifting conditions. They can cut benefits anytime, and they’ve done so many times.” “But that’s not fair! I’ve been self-employed for a long time, and I know I’ve paid big money into Social Security every year.” “That’s the breaks, Tommy. Millions of baby boomers are retiring. The ratio between people paying into the program and people drawing out is shrinking fast. In 1950, 16 workers paid in for every person drawing out. Today, just 2.8 workers pay in for every person drawing out.” “But Social Security has run surpluses for years! Surely there’s some huge pile of dough that the government can tap when I retire.” “The Social Security trustees do report a nearly $3 trillion surplus. But as surpluses have rolled in, the government has used the money to purchase special Treasury bonds, then used that money to fund other programs.” “The government borrows from itself?” “No, Tommy, the government borrows from you! Look: In 2035, reports the Motley Fool, baby boomers will have mostly retired, with only 2.2 workers paying into the system to fund each beneficiary. To cover the shortfall, the government will need to cash in those bonds. Guess where it’ll get the money to pay off the bonds.” “Correct, Tommy. The government will need to cut benefits or raise taxes, and will likely do both. As the trustees say, benefits would have to be cut in 2036 to 80 percent of what’s promised unless taxes are increased.” “I read that since 1936,

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