Americans retiring now are the first generation who have paid more into the Social Security system than they will get out of it.
That’s hardly a surprise. After all, the Social Security system started in 1937. The tax collected to pay for it was 2 percent of income. The benefits paid out would obviously exceed the revenue generated.
Those who retired in 1960, according to an Associated Press financial analysis of the Society Security system, could expect to get back seven times more in benefits than they paid in Social Security taxes. As the years have gone by the tax-to-benefit ratio has shifted.
“For the early generations, it was an incredibly good deal,” said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. “The government gave you free money and getting free money is popular.”
Unfortunately, too many people have looked at Social Security as “free money” — a government-run pyramid scheme.
But the intent of Social Security was not to be a source of “free money,” it was created near the end of the Great Depression as a program to provide reasonable retirement income for all and a safety net for those who have fallen on hard times. It was seen as a way that Americans could better care of each other.
Over the years some of those lofty goals have been obscured by greed and politics. Benefits have become too generous in some situations. For example, if someone is 65 and retired and his or her children are still minors those children also receive Social Security benefits. That scenario was very rare 75 years ago but not today.
People are living longer.
The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts, according to The Associated Press.
Therefore, the AP analysis shows, future retirees will either have to pay higher taxes while they are working, accept lower benefits after they retire or some combination of both.
Another alternative is to make a change in the benefit payments and eligibility to reflect the reality of today’s world.
The top priority must be to provide a safety net in our society and an income supplement so people will have the means to retire.
This will require a shared sacrifice and an understanding that not everyone is going to get as much money out of the Social Security system as they put into it.