Social security was established by FDR in 1935 as part of The New Deal.  It was intended to alleviate poverty for the elderly, unemployed, and fatherless children.  Workers pay in during their working lives and draw from it once retired, each generation funding the previous one.

Since 1983, the cash flow has been positive, more coming in than going out.  By 2021, just seven years from now, it’s forecast to be paying out money faster than it comes in.  Some experts think this is not apocalyptic and the money will be diverted from somewhere else to continue the program.  The surest way for a politician in America not to get elected or re-elected is to try to mess with Social Security so the government will always find a way to fund it.

One way to save the program is to privatize it.  It would be less like a tax and more like a 401K.  This way the money could be left to family after death, the money could be invested in the market, and it would reduce the role of government as they would not longer manage this enormous pool of money.  The problem with this plan is that during the transition, it would add one trillion dollars of debt to the economy.  There is also no way to know exactly how much you will receive as there is with the program as it stands.

Two more realistic plans are to raise payroll tax by 2%.  This would ensure solvency for the next seventy five years.  Another option is to decrease the benefit by 13.3%.  This would ensure solvency indefinitely.

The takeaway is that people of working age now will probably collect social security but it is not something that should be depended on for the entirety of your retirement income.  Keep investing, continue maxing your 401K, those are things you can control unlike the future of social security.

Show Notes

Betterment:  Our favorite investing tool.  Use this link to get six months without fees.

SSA Calculations:  See an estimate of what you will collect from Social Security in the future.

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