There is a perception these days that Social Security is broken, or almost broken, and might be heading for extinction. Many believe because it is broken, countless numbers of people will one day not be able to depend on it at all for retirement benefits. The fact is, however, according to experts of the American Association for Retired People (AARP), that although Social Security has problems that need fixing, it will continue to be solvent, even without any fixing until 2040. Until then, it will be able to fund retirement benefits for all eligible recipients and even then could fund 75% of all required payments after 2040.
Even though Social Security may have problems, it isn’t broken and is as healthy as it is because in the early 1980’s the President and the Congress took steps to strengthen it and get it ready for the future. A stockpile of money has been building since then and will be available long after the first baby boomers reach retirement age.
A total of 65 million people are paying into Social Security and are building a reserve. In addition, one out of three retired Americans are actually building up Social Security trust funds by paying taxes on their Social Security.
The money in trust funds goes for benefits and administrative costs. Even though in the future there may be more retirees than there are working people paying into Social Security that is not the case at the moment. Currently, more money is going in than being paid out, and that is building up Social Security. In 2002, the income for Social Security was $627.1 billion. Only $461.6 billion was paid out, leaving a surplus of $165.5 billion. That surplus went into the trust fund. That is why Social Security is far from broken at the moment, even though it may need fixing, according to the AARP experts.
Some people are skeptical of the practice of putting Social Security trust funds into government bonds. They call that an accounting trick. Other people call that thoughtful, conservative investing.
According to the AARP experts, the Treasury Bonds purchased with Social Security funds are earning interest, including the $165.5 billion from 2002. The total holding of the trust funds for Social Security is $1.4 trillion. When needed, that money can be cashed in.
According to the AARP experts, the bonds are not only safe, but they earn seven percent interest each year. In 2006, $80 billion of Social Security’s income was interest alone. That is about 13 percent of the total income. Experts say in good times and bad, for over 200 years, the bonds have paid off.
AARP experts say because of the trust fund and the current surplus, Social Security isn’t dead or broken. Even though paying only 75% of benefits as of 2040 would not be acceptable, there is time to make the necessary changes, if politicians are willing to do so. According to the official website of the Social Security Administration, www.socialsecurity.gov, 96% of all workers are covered under Social Security, and 52% of the public has no private retirement benefits. A total of 31% of workers have no money set aside for retirement.
