How is social security in the US at risk of running out of funding, if every tax payer pays into it?
In: 1004
There is no social security the way you’re thinking of it. There is no account with your name on it. There is no pool that you’re contributing to.
Social Security is a redistributive tax. Those paying today are funding those that are collecting now. With the number of people paying becoming smaller, it’s harder to fund it. You also have inflation and cost of living increases.
The simplest explanation is that there are more retired people now than ever, due to the baby boom after the war.
While we are paying in, there are more of them taking out…
The ELI5 answer:
When social security was set up, the average life expectancy was 65, about the same as retirement age.
Today, retirement age is 65 or 68, and the average life expectancy is about 85.
Benefits are lifelong, even after someone exceeds what they paid in.
(Of course, average life expectancy is a bit misleading, as most increases have come from reducing infant mortality. But it’s still a useful number.)
The government prints the money. Social security is not like your or my checking account, it does not have to have a positive balance. Saying that Social security will run out of money is a scare tactic and only that. I can only get back what I put in. The US military can spend money from a bottomless checkbook but Social security has to balance it’s checkbook? Bulls**t.
it’s not
No more than the Military is at risk of running out of funding.
How does it work? they appropriate the funds. Done.
That’s it, literally
I will say it again and in a more simple fashion, as long as elected officials in America want to fund social security or any other program with U.S Dollars. They will not “run out” of U.S Dollars.
So the idea behind SS is that the working age people pay into a pool of money which gets handed out to people older than working age. This means the money you put in is not the same money you’re getting out, it’s not like a bank. It’s every generation funding the retirement of the previous one.
This works out great as long as the number of young people keeps going up (more people paying in=more money for old people) or stays the same. The biggest issue is that for many many years people have been having less and less kids, so less people that grow up, have jobs and pay for the previous generations retirement and at the same time we have a particularly big generation which is all entering retirement age.
So less kids=less workers=less SS funds.
Meanwhile more old people= more SS being taken out.
The SS system does not take the money you pay and invest it until it’s time to pay it back to you. They use the money you pay today and give it to the people who are retired today. When you are retired, the money for your SS will come from the people who are working and paying taxes at that time. If the population continues to slow in growth and we continue to limit immigration, there won’t be enough people to pay the FICA taxes to support all the retirees.
The system was designed when there were roughly 7 people working for each person retired. Now, that number is only slightly more than 2 people working for every retiree.
How about means testing? Bill Gates can collect SS
Because in the 70s Congress actually stole that money and spent it. Now there’s simply an IOU. And those benefits are being paid out of current tax dollars.
SS is not at risk of running out of money. It is at risk of coming up short. Large difference.
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