Social Security: Broke!

This year Social Security will pay more in benefits than it receives in payroll taxes. We all knew the day was coming, and that day will happen sometime this year and throughout next year according to an announcement by Social Security officials, including Treasury Secretary Tim Geithner, on Thursday. This is the first time in 30 years Social Security will pay out more than it collects, but it surely will become more common place in the near future. According to the same officials, Social Security will be in the red for the foreseeable future beginning in 2015.

Several factors contributed to this year’s dip into the red. First and foremost is our currently high 9.5% unemployment rate. Basically, there are a lot fewer employees paying into the system. Then combine this with 50% of baby boomers taking their Social Security benefits at 62, rather than the full retirement age of 66, and you have a deadly tonic for the Social Security system.

Is this a major cause for concern? Yes and no depending on how you look at it. This isn’t the first time Social Security has been in the red. When America experienced stagflation, Social Security was in the red from 1970 to 1983. Social Security recovered and has been fine until now. So this may very well be a bump in the road. However, as baby boomers continue to inflate the number of Social Security beneficiaries, and with a painfully slow recovery, the future outlook doesn’t look too rosy. Either way, Social Security officials project the system will be exhausted in 2037.