Social Security under threat: the dangers of population aging and job reductions

In 2022, Social Security distributed retirement, survivor and disability benefits to 70.6 million beneficiaries nationwide.

The Social Security Administration (SSA), the primary federal Old-Age, Survivors, and Disability Insurance program, is under financial threat. The situation is generated due to the increasing number of people applying for their government pensions. Without immediate intervention, millions of beneficiaries could be affected by significant cuts to their payments.

In 2022, Social Security distributed retirement, survivor and disability benefits to 70.6 million beneficiaries nationwide. All of this financed through a mix of taxes and government reserves. According to Newsweek, Social Security represents the most significant outlay of the Government's annual budget, totaling $1.3 trillion, equivalent to five percent of 2023 GDP.

70.6 million people received benefits from programs administered by the Social Security Administration (SSA) in 2022.

However, one of the main challenges the program will face is the potential for significantly increased payouts due to the rapidly aging population, coupled with a stagnant workforce. This is an issue that the agency itself has highlighted. Social Security officials have explained that demographic changes are poised to pose financial challenges for the system in the near future.

"Declining fertility rates and increasing life expectancies are causing the U.S. population to age. Today 12 percent of the total population is aged 65 or older, but by 2080, it will be 23 percent. At the same time, the working-age population is shrinking from 60 percent today to a projected 54 percent in 2080. Consequently, the Social Security system is experiencing a declining worker-to-beneficiary ratio, which will fall from 3.3 in 2005 to 2.1 in 2040 (the year in which the Social Security trust fund is projected to be exhausted). This presents a significant challenge to policymakers," the agency highlighted.

In that sense, the agency indicates that a policy option that could help keep the Social Security system solvent is to reduce retirement benefits, either by raising the normal retirement age or by indexing life expectancy to reflect the fact that people are living longer.

"However, these reductions in benefits have the potential to harm economically vulnerable retirees. Other options, such as progressive price indexing proposals, explicitly protect the retirement benefits of low lifetime earners. Still other options would seek to raise additional revenue for the system," the Social Security report states.

Since individuals will be living longer in retirement, many policymakers believe it is important to encourage older workers to delay retirement so that they can maintain a quality standard of living throughout their retirement. One proposal to encourage continued work would be to increase the early eligibility age for Social Security benefits from age 62 to age 65. This could possibly hurt individuals who need to retire from physically demanding jobs but would ensure that people receive higher benefit amounts once they were able to fully retire.

In that sense, the economist José Arámbula explained that the number of workers that exist today has decreased, that is, the useful workforce (people who work from 16 or 18 years old to 65 years old) and this could affect the social security system. He highlighted that "they are the ones who generate the capital, all the income, all that capital is taken out of their payroll, which is 6.2% and if we are talking about the Medicare alphabet, another 1.45% is added."

Arámbula was emphatic in describing the social security system as "the insecurity of Social Security because it is not really safe, it is not fair and it is not social."

"The key fact is that since 2008, some are retiring at the age of 62 - early - others at 65. Between 11 million and 12 million retirees are registering per day. Then this has to be covered with the workers who are currently active. And it is expected that there will not be many more workers because fewer people are being born and life expectancy has increased," said Arámbula.

"There are few who have to support many"

Arámbula recalled that this system began in 1935 with Franklin D. Roosevelt and that at that time there were quite a few 'baby boomers' (people from 1946 to 1964) and it was a large mass of workers. However, currently there are much fewer people who are contributing so that retirees can collect their pension. "There are few who have to support many," he said.

"We as individuals should take care of our social security with retirement programs or opening a retirement account. They are private accounts and we would not depend on what the State gives us. That way, the State will not have control over us because if we depend only on Social Security, we will be prone to wanting more help and for the politician himself to have a way of manipulating us," commented Arámbula.

Arámbula pointed out that one of the ways to address the situation, beyond turning to the private system, is to promote immigration in an orderly manner that allows the growth of the working mass. It proposes doing so through a program similar to Bracero that allowed the legal entry of thousands of immigrants in a legal and orderly manner.

"A public policy could be given as was the case in the 1930s with the Bracero Program, with which legal people could be brought into the system and the labor market would adjust. By having more workers, they can help us solve this problem," said the economist.

Finally, the economist warned that politicians "are going to want to raise taxes, something that is not popular, and they are going to want to raise the retirement age. The retirement age is increasingly being extended and this will continue to happen as long as life expectancy increases. The problem is that this is not popular and since it is not sustainable for the politician who manipulates the economy, he will not want to distort it in favor of the taxpayer and that will happen until this is solvent and it is expected that this will be in 15 years."