Can You Count On Social Security As Part of Your Retirement? Yes. Here’s Why.

Valerie Tarico ✒ Social Security is in better shape than most people think.

As a young adult—almost forty years ago—I assumed that Social Security would be bankrupt by the time I was ready to retire. That was the word on the street. Today people who made that same assumption way back when are receiving their monthly checks. But that hasn’t quelled the dire rumors, which have circulated in one form or another since at least the 1970s.

In the latest version, we are told that we need more babies to support retiring Baby Boomers. Young women aren’t doing their job. It’s a tale of Social Security as an intergenerational pyramid scheme, with young people paying for benefits their elders only partially earned—and counting on an even larger cadre of youngsters coming up behind them to do the same. Like many viral stories, this one contains bits of truth mixed with exaggerations and drama that make the narrative more viral but ultimately leave people with a distorted sense of reality.

So what’s real?

Social Security will have a steady stream of income and outflow for the foreseeable future.

For many years, the program took in more than it paid out. It built up a surplus called the Social Security Trust Fund that is now being drawn down. The latest projections say this fund will be used up by 2034. When it is gone, Social Security will not be bankrupt, nor do economists or retirement planners (or Social Security’s board of trustees) see bankruptcy as a risk at any time in the foreseeable future. That is because the program has ongoing income from payroll taxes. However, when the trust fund is gone, projected revenues will cover only 75-80 percent of scheduled payouts, so if nothing else changed, projected payouts would have to be decreased by 20 to 25 percent. That’s a big deal for people counting on Social Security, but it’s a long way from bankruptcy, and some simple, sensible fixes would close the gap.

But what about the 16.8 trillion dollar shortfall that I’ve read about?

Every year the Social Security trustees complete an analysis that projects program revenues and commitments 75 years into the future. The multi-trillion dollar shortfall is the gap between what Social Security would take in and what it would pay out by 2096 if no assumptions changed and if Congress did nothing to close the gap between now and then. Those are big ifs. To put it another way, the number derives from projecting deficit spending that hasn’t started yet for almost three quarters of a century assuming that nothing changes in that time. It is a valuable management tool, but an unlikely map of what is to come.

So, what are the two “simple, sensible” fixes that would close the gap?

Both “fixes” would course-correct ways that Social Security has drifted out of alignment with changing conditions. At the end of the 1930s, when the program started, only 54 percent of adult men and 61 percent of adult women lived to age 65. By 2015, those numbers were 80 percent and 88 percent respectively. For those who do reach 65, additional life expectancy has increased by five years, but the Social Security benefit age has increased by only two, to 67. People not only live longer, they are healthy longer. Research shows that many people in their late 60s are as healthy and capable as younger workers and, paradoxically, retirement can have negative health and mental health effects. So, the first correction would be to gradually raise the benefit age to 70 and then add a formula that adjusts that as health and life continue to grow longer.

The other fix would be to raise the cap on wages that are subject to withholding. Currently Social Security gets withheld from earnings up to $142,800 in a year. Additional earnings beyond that cap do not have social security withheld. That is because Social Security was meant to be a forced savings program that returned a basic level of income during retirement. In 1983 roughly 90 percent of wages were subject to Social Security withholding, with 10 percent above the cap. But as inequality has grown, a greater percent of wages escape withholding. By 2016 that number was 17 percent, meaning 1.2 trillion dollars in wages to high earners were exempt. In addition, life expectancy has risen more for rich than poor people, which means that higher income people draw from the program longer. So, again, raising the cap would correct one of the ways that income and outflow have drifted apart because of changes in our society.

If these changes are so simple, why haven’t they been done?

The problems are political. The Left wants to close the gap by increasing contributions from high income earners. They want to raise or eliminate the cap. The Right wants to close the gap by raising the benefit age. Neither side wants to offend their core constituents, who have become accustomed to unsustainable payouts or unsustainable tax exemptions.

Many other possible tweaks to Social Security could help to either improve finances, or bring Social Security into alignment with modern ways of living, or both. For example, we could revise cost-of-living formulas to better reflect the changing mix of technologies that people use to maintain quality of life. Also, because Social Security was set up when most people married and most women didn’t work, it offers benefits to married or widowed women that aren’t available to singles. This is regressive.

Lists of proposed improvements to Social Security can be found all over the internet (here, here, here, here, here, here). Some have been carefully thought out by analysts; others not so much. But even the well-considered proposals face resistance from one or the other side of the aisle, and as polarization deepens, neither side has been willing to compromise. The last major overhaul of Social Security was in 1983. But pressure is mounting and reform legislation—the Trust Act—may pass this year. As conflicted as this topic is, politicians know what would happen in elections if expected benefits suddenly dropped by a quarter because of their failure to update the program.

What about the “looming birthrate disaster” we’ve been hearing about, the idea that we won’t have enough young workers to support the old?

It is neither looming nor a disaster, but this part is real: Young women are having fewer babies and people are living twice as long as they did 100 years ago. Alarmists of many stripes—nationalists, religious pro-natalists, immigration advocates and some others—have been prophesying doom, including for old age security programs. It is also true that for a long time the failure of politicians to reform and update Social Security was offset by rapid population growth. So, the notion of the program operating currently as an intergenerational pyramid scheme is not altogether baseless.

But people who say we need an ever-larger cadre of young workers to grow economic production (and, thus, funding for safety net programs like Social Security) have either misread or haven’t read the economic research. Improvements in productivity (and take-home pay and standard of living and per-person funding for social programs) are driven primarily by innovation and the spread of better technologies. Across many countries and time periods, faster population growth maps to slower growth in per person productivity and standard of living. Rapid change of any kind tends to make adjustment difficult, but gently declining birthrates may help workforces adjust to coming trends like AI and robotics.

The trustees of Social Security already project a below-replacement birthrate in their long-term analysis, though they will continue to review and revise. Like other demographers, they assume that 20th century population growth was anomalous and won’t continue indefinitely. (It would be hard to imagine a planet where it did.) That said, experts don’t know how these changes will play out. Retirement security programs will need other foundations, foundations that don’t require population growth, if they are to remain strong long term. The Social Security Administration tracks similar programs in other countries to monitor what works well.

Why it is important to get the facts right.

Misperceptions about Social Security are worth correcting because they harm individuals and society at large. When people wrongly believe that Social Security is headed for the rocks—that it is going bankrupt, or that experts don’t know how to fix it, or that young workers are about to be overwhelmed by burdensome retirees—many feel more anxious or resentful. Their own future seems insecure, and their withholding seems like money down a black hole rather than the savings plan it was meant to be. They may be more mistrustful of government broadly, less confident that tax dollars will be spent wisely for their good and the good of other people.

Fortunately, things are better than many of us have been told. Barring catastrophe (in which case we all will have bigger things to worry about), Social Security is going to be around for a long time. True, the system needs updating, and if politicians fail to do their jobs some adjustments will be painfully abrupt. And we are no better now at predicting the future than our ancestors were 85 years ago when the program started. It would be silly to assume that we actually know how things will or won’t work in 75 years. We can be confident that future generations will need to revamp to fit changing conditions, just as we do now. But overall the program is doing what it was meant to do.

Valerie Tarico is a psychologist and writer in Seattle, Washington.

She writes about religion, reproductive health, and the role of women in society.