social securityWhile Democratic U.S. Representative Maxine Waters has been busy telling Tea Partiers to go “straight to hell,” Social Security has been headed that way for years. According to the Associated Press:

New congressional estimates say the trust fund that supports Social Security disability will run out of money by 2017, leaving the program unable to pay full benefits, unless Congress acts. About two decades later, Social Security's much larger retirement fund is projected to run dry, too, leaving it unable to pay full benefits as well.

Liberals can say conservatives want to throw Grandma off a cliff all they want, but the fact is that without reform, entitlement programs like Social Security will eventually collapse our entire financial system.

Here are the two main reasons Social Security is absolutely doomed to fail at some point in the (not too distant) future: 1) People are living longer, and 2) payouts each year are increased at a rate above the inflation rate. Simply put: You cannot give more money to more people without it coming from somewhere.

People are living longer, and the retirement age remains 65. This means that there are more people every year collecting benefits. Since the Baby Boomers did not have as many children as they had siblings, the ratio of workers paying into the system to retirees receiving payments is going to shift dramatically, placing a huge financial burden on the workforce.

In 1950, there were 16 workers for every retiree on Social Security. Today there are less than 3. As mentioned above, when the Boomers start retiring (this year, by the way), more people are going to be relying on fewer workers to support them.

In addition to the ever-increasing amount of beneficiaries, the payouts for Social Security are ever increasing as well. The benefit formula uses average national wages, rather than inflation, to calculate payments to retirees. On average, wages grow faster than inflation. It’s why people have more stuff today -- because the cost of living has actually gone down over the years. 

Can you imagine telling a 1950s American that by 2011 the average household would own two or more cars? Or that 9 out 10 of us would own cellphones? How would you even explain a cellphone? 

If Social Security benefits continue to be based on wages rather than inflation, workers’ taxes are going to go up, which means less money for them, which means no new iPhone this year. If we kept the levels even with inflation, retirees would still get the annual increases they needed to live, and workers could keep more of their own earnings to save or squander as they saw fit.

Something’s got to give. Changes need to be grandfathered in. There’s a limited amount of money, and there’s no way we’ll be able to keep going as we’re going now. Reform does not mean an immediate end to Social Security, but no reform guarantees its collapse.


Image via DonkeyHotey/Flickr