I occasionally hear murmurings about U.S. Social Security going bankrupt, and a Congressman is proposing major changes to prevent it. But I have never seen any explanation. The reason it puzzles me is that the fund has increased every year since 1984 and most years before that.
closed as off-topic by keshlam, Dheer, JoeTaxpayer♦ Dec 11 '16 at 0:52
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Questions on economics are off-topic unless they relate directly to personal finance." – keshlam, Dheer, JoeTaxpayer
Baby Boomers. At the start of 1945, a good portion of the male population of the United States was in the armed forces. As the war ended, they came home. Nine months later, there was an uncommonly large number of pregnancies and a population surge. In 2008, the first of those babies became eligible for Social Security retirement (at the age of 62).
The Baby Boom ended in 1964, so many are still in their peak earning years. Older people generally make more money in real terms than they did when younger, so the last years before retirement are the best. Under current rules, the last of the baby boomers will be eligible for retirement in 2026 and will have to take Social Security by 2035.
The ratio of workers to retirees is expected to drop from around three to one down to around two to one.
Also note that while the fund hasn't actually fallen since the 1982 changes, from 1999 to 2009, it increased by more than $100 billion every year. In the last few years, it has increased by as little as $25.586 billion (in 2015). It bounced back a bit in 2016, but another recession would likely push it into the negative. And even without a recession, it will likely go negative within ten years.
In a comment you said:
That article says that increasing the tax to 14.4% would save it. But it was higher than that when I retired.
This is untrue. The tax is currently (and has been since the eighties) 6.2% on the individual and 6.2% on the employer for a total of 12.4%. You may be counting Medicare as well, which is an additional 1.45% on both for most people. That's a total of 15.3% for both Social Security and Medicare. That starts with the first dollar of income, no deductions.
The proposed increase to 7.2% on both payers would make the combined total 17.3%.