Social Security Death Spiral?
One of the most salacious of clickbait articles, written over and over by the financial news media, is the “social security is gonna run out of money!” article. When readers start to lose interest, a website will run that one and get an instant flurry of clicks. But is there any truth to it?
Yes, without any tweaks at all, it is estimated that eventually the amount being paid out of social security will overwhelm the amount being paid into social security. While it will almost certainly take many decades to happen, the current structure is unsustainable. But what the articles routinely fail to mention is that it is fixable, as it has been fixed in the past. The way it has been fixed in the past is by raising the Full Retirement Age (FRA) for future payees.
The 1st social security check was issued in 1940, and was paid out to a 65-year old woman named Ida May Fuller in Vermont in the amount of $22.54. Age 65 was the earliest age (“Full Retirement Age/FRA”) that a person could start collecting. And in 1940, the average life expectancy in the US was about 60 years. So more than half the people in the US never even got to collect one payment from social security. They died before they could start receiving checks.
But of course, people started living longer and longer. Today, the average life expectancy is up at about 79 years. So in recognition of this, in 1983 the Full Retirement Age started being adjusted upwards in a gradual format over a series of years. The end result is that most people today have a Full Retirement Age of 67 (not the original 65). So most people wait longer to start collecting social security.
The obvious problem is that life expectancy went up from 60 to 79 (a 19 year increase). But the feds only raised the Full Retirement Age by 2 years. Thus the less-than-100%-funded status of social security.
Fortunately, the math shows that the gap can be filled by raising the Full Retirement Age to 70 for workers age 40-and-younger. Odds are high that this is the solution which will be used. Raise the Full Retirement Age to better mesh with people living longer, and do it for the workers who are not on the verge of collecting social security. So while my own personal Full Retirement Age is 67 (and I am 53 years old now), my sons will almost certainly not be able to start collecting full social security benefits until they each reach some age older than 67.
Source: The Social Security Administration
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