The Problem with Social Security

More about pensions and retirement funding

Social Security is the so-called Third Rail of American politics. It’s more popular than Taylor Swift and more controversial than Matty Healy, all at once. It is most definitely an entitlement, no many how many memes people post to the contrary. And, it’s (probably) in trouble.

I started this series of newsletter articles based on a special retirement issue of the New York Times Magazine, but today I want to share a Washington Post story on the current state of Social Security (Washington Post gift link). It’s worth reading because it sets out everything and gives more context to the looming pension crisis.

The TL;DR: it was designed to keep retirees out of poverty, and it is going to start running out of money unless taxes are raised, benefits are cut, or a miracle takes place.

Americans have become used to the idea that people should retire at 65, enjoy years of discount movies and pickleball, and live independently as long as possible. This is a huge change. The AARP was founded in 1958 out of a concern that too many retirees were struggling. Census Bureau data shows that in 1967, 20.7% of men and 42.0% of women over age 75 lived with non-spousal family members. For 2023, those numbers were 6.2% for men and 20.1% for women.

Congress has a big incentive to fund miracle, because Social Security mostly works for retirees and their families. If Social Security goes away, then it will fall on children, grandchildren, nieces, and nephews to ensure that their elders stay out of poverty. That’s a heavy burden in our culture, because our culture values generational independence. Elders rarely want to live with family members (I’d love to know what percentage of those people over age 75 living with relatives fought the move every step of the way); family members struggling with child care, educational expenses, and saving for their own retirements often don’t have a lot of extra money to help out their parents and grandparents no matter how much they want to.

I’m starting to see a handful of pundits and social-media agitators talk about privatizing Social Security. That seems to come up every time the stock market gets hot. In the early 2000s, following the dot-com bubble (and bust), President George W. Bush proposed a private account system. But then the financial crisis hit, the stock market and interest rates returned practically nothing for about a decade, and people stopped talking about Social Security privatization. Today, everyone is abuzz about the Magnificent Seven and Bitcoin, and generating returns seems easy! If only.

The state of the Social Security trust fund should make everyone who is not retired nervous. I suspect we’ll see tax increases and maybe a further increase in the retirement age before long, because keeping retirees out of poverty helps older people and their families. But I admit, my faith in the political system has been steadily fading.

What do you think?