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The Social Security Dilemna

Financial Knowledge

Social Security, Defining the Problem  

The Social Security Trustees publish an annual report that, for the past several years, has drawn attention to the looming funding issue.   SS is likely to experience a funding shortfall in 2034-35 primarily due to   

  • A smaller workforce  
  • A much larger retirement population (baby boomers are retiring at a rate of 10,000 per day) 

The proverbial can has and will continue to get kicked down the road until our Congress decides to act.  And it is anyone’s guess when that will be!  The good news is that awareness is increasing among US adults.  According to a recent Gallup poll in Chartr, 43% of voters consider it to be of great concern, compared to 24% believing it to be of some concern.  The rest consider it to be of no or little concern. 

Unfortunately, the Federal Reserve Board estimates that 43% of people between 55-64 have no retirement savings. The SSA estimates that about half of the population aged 65 or older live in households that receive at least 50 percent of their family income from Social Security benefits and about 25 percent of older households rely on Social Security benefits for at least 90 percent of their family income.  Social Security is critical and necessary to US households.  

 Some Social Security History  

The last time SS was reformed was in 1983.  A special commission (the Greenspan Commission) was appointed by the President and Congress to study and make recommendations for Social Security. Subsequently, Congress approved the following, along with other stipulations.   

  • Increasing the FICA tax, currently 6.2% for the employer and 6.2% for the employee, or a total of 12.4% 
  • Raising the amount of wages subject to FICA tax, currently at $168,000  
  • Taxing social security benefits for the first time  
  • Implementing a long-term plan to increase the age eligibility for benefits (started 40 years ago and will be complete in 2027).  Since SS started in 1935, the full retirement age has increased by only 2 years….65 to 67.  

SS was signed into law in 1935.  Social Security taxes started being collected in 1937 and regular ongoing monthly benefits started to pay out in 1940. Since that time the SSA has never missed a payment! 

In addition, aware that a tsunami of Baby Boomer retirees was looming, the commission included a plan to accumulate excess funds from workers.  This became the Social Security Trust Fund. 

 The Current State of Affairs  

 The excess dollars in the Trust Fund were invested in special interest bonds that pay approximately 2%.  Since 2010 we have been drawing on the trust fund, along with the accrued interest, to make up for the lack of funds needed to pay 100% of benefits to enrolled retirees. 

It is this trust fund that is forecasted to be depleted by 2035.  At that time SSA estimates that there will be enough workers being taxed to pay retirees approximately 80% of their benefit

However, part of the calculation included the assumption that if 90% of US wages were taxed, we would never run out of funds to pay 100% of benefits.  

Currently we are collecting FICA taxes on only 83% of US wages.  Why?  This is due to an imbalance of income generation.   There are many workers who make more than the maximum SS ceiling ($168K), leaving less income to be taxed. 


Unfortunately, we live in a highly polarized world.  The Social Security issue has become a political crisis and can only be solved by strong executive leadership and a collaborative bi-partisan Congress willing to work together to provide a solution (everyone, stop laughing! 😊 ). 

 There are many ideas on the table.  Some of the ideas that have been suggested include:    

  • Increasing the retirement age for very young workers (those under 20) 
  • Increasing the wage ceiling (If the ceiling were raised to $250,000, it would solve about half the problem)  
  • Increasing the amount of taxes being withheld from wages  
  • Some combination of the above  
  • An infusion from a general revenue fund  
  • Change the amount that retirees can receive when they first apply for benefits. Many proposals combine a reduction in benefits for high earners, with an increase in benefits for lower earners. (This is known as “progressive price indexing.”) 

  We suspect there will be many more considerations as time goes on.  

Social Security in Other Countries  

More than 180 countries have some type of system for retired or senior citizens. Mercer investigated and published a report that analyzed 43 countries’ plans and ranked them against a set of criteria that covered the following categories: adequacy, sustainability, and integrity. 

 In the most recent survey, Iceland, The Netherlands, Israel and Denmark received the highest grade, an A, meaning a score greater than 80.  Out of 43 countries, the United States was ranked C+ with a score between 60-65. 

 Our US system pays out an average of 41% of workers’ wages compared to an average of 57.9% of workers’ wages paid by other countries.   The Netherlands pays out more than 90% of the median worker’s earnings in retirement. On a global basis, the US system is paying less than (near the bottom of the list) most countries who provide these benefits.  There are two major reasons for the disparities between countries:    

  • Population size  
  • Taxes (the Netherland requires a 17.9% contribution from employees compared to 6.2% in the US)  

  The Bottom Line  

 Our Social Security system is clearly facing huge challenges.  They are not insurmountable and will require education, collaboration, and a willingness to address the issue from voters and politicians alike.  

We must all accept individual responsibility to save for retirement and avail ourselves of the tools that do exist.  This requires personal finance to be a part of our education curriculum and a willingness of each of us to save more.  Social Security was never intended to provide 100% of retirement funding.

If you have questions about your social security benefits or when to take them, please reach out to Jenifer@mosaicfi.com  

This article is not intended to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. 

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