If you look at your paycheck and regret spending on the Social Security that you'll "never" see, Nathan Punwani's here to tell you why you don't need to worry. 

For more than a decade, the media and right-wing pundits have intimidated young people into thinking that Social Security is financially unstable and will declare bankruptcy in the not-too-distant future. Much to the dismay of conventional thought, these alarmist assertions are nauseatingly exaggerated and are uncorroborated by the evidence.

This is not to say that the retirement scheme does not face long-term challenges. As 78 million baby-boomers age and retire, changing demographics will naturally strain the system. Social Security revenues are expected to fall short of expenditures by about 2 percent of payroll contributions over the next 75 years. However, minor adjustments can easily address the disquiet. There is no need to coerce a safety net for millions of senior citizens into radical reconstructive surgery.  

On March 25, the trustees of the Social Security Administration (SSA) published its yearly review of the pension’s long-term viability. According to the report, the system’s finances confirm “a really significant improvement” and can pay retirees 100 percent of promised benefits until 2041! The Congressional Budget Office reckons that Social Security will remain solvent until 2052, when Paris Hilton turns 70! The social program is not in an imminent crisis as is commonly believed by young adults.    

Social Security operates by collecting payroll taxes from workers and employers, which are in turn used to finance benefits for current retirees. Since the 1980s, the system has been running a surplus: the pension fund collects more in payroll taxes than is needed to fund benefits for present-day recipients. The excess revenues are deposited into the Social Security Trust Fund. Like any bank or credit institution, the money does not idly sit in the trust. Instead, the money is invested in U.S. Treasury bonds, which accrue interest over time. This permits the federal government to spend the surplus on other programs besides Social Security while earning the trust fund a decent rate of return.  

In fact, Social Security will be running a surplus for another nineteen years, when it will have accumulated $5.7 trillion in federal securities! After 2027, the trust fund will begin to redeem the bonds that it purchased for cash. As a result, the system will be able to shell out benefits to recipients until 2041, according to the latest trustees' report.

Furthermore, experts believe that Social Security may remain solvent longer than expected. The SSA’s actuaries use different assumptions of economic growth to make three projections of the system’s fate. These estimates are referred to as high-cost, intermediate, and low-cost. The intermediate projection presumes that the economy grows at an annual rate of 2.3 percent over the next 75 years. This is significantly less than the 3.4 percent that the economy grew every year, on average, from 1960 to 2005. Under the statisticians’ low-cost estimate (which assumes the economy will grow at 2.9 percent a year, still below the historic norm), Social Security remains flushed with revenues and never runs out of cash.

Even if the pessimists are right and the system bleeds red ink within the next 75 years, three simple reforms could put Social Security back into balance. First, Congress should set aside the estate tax’s revenues for Social Security. The buildup of enormous family fortunes over generations largely depends on a country’s productivity and infrastructure. Heirs of such prosperity have a moral obligation to contribute to the public coffers, which have so greatly benefited them. At current rates, a due on inheritances worth $7 million or more (for a couple) would slash the 75-year gap in Social Security contributions by 25-30 percent.

Secondly, Congress must allow Social Security to invest some of its assets in high-yielding stocks and corporate and municipal bonds instead of just Treasury securities. Every other public and private pension fund can diversify its portfolio in order to achieve high rates of return. Why can’t Social Security do the same?

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