There are political discussions in USA regarding whether Social Security is maintainable over time.
I want to know how the Social Security System works in United States, and what the basis is of the concerns about its maintainability.
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First, the formal basic information on how Social Security works:
Informally, it's very simple from the view of an individual:
Now, for the maintainability problem.
The short short version:
So, once we have "too many" Baby Boomers retired and drawing SS benefits, for "too many" years, with "too few" - relative to that - people paying FICA taxes - there eventually simply won't be enough money in the system to pay all of the promised benefits, without additional sources of revenue. (where "too" refers to assumptions made when original SS system was calibrated)
Somewhat controversially, Social Security can be envisioned as a giant Ponzi scheme (marketing pyramid). Here's how it works.
Your Social Security just went broke. Welcome to what will happen to 21st Century in USA, when all the Boomers who couldn't be bothered to raise enough children will all over the sudden retire, and live longer than SS-originally-planned in retirement years.
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I won't answer the entire question, as it appears a lot has already been written, but will try and provide a really quick TL/DR response to your second part:
The concern is that Social Security benefits are paid by the current working generation, and benefits are taken by the current retired generation.
This creates two potential problems (both of which are happening now):
Alas, the system wasn't designed to handle these fluctuating variables automatically very well...hence the need to debate how we're going to go forward with fixes.
The SUPER-SHORT-TL/DR VERSION:
Social Security wasn't set up to handle the fluctuations of the economy and demographics as well is it maybe could have been.
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(These are rather additional thoughts to @DVK's answer which are too long for a comment.)
edit: turns out that the US system is more different from the German system than I initially thought from @DVK's answer, because
However, knowing this, I think that the scenarios I calculate below actually are more relevant to the original question than I thought: because the US social security actually does these projections, they should have been pointing out the problem early. A decline in births is something that can be spotted basically immediately. The decline in births could have been spotted latest by ca. 1965, probably earlier because it was linked to a solid reason.
But in any case, this population pyramid of the USA does not suggest any serious decline in the working generation:
particularly not compared to other countries:
Due these social security reserve projections say that at the current funding scheme, the pension cass will run out of money within 10 or 20 years - still quite some time to take decisions.
In fact the 1 yr working adulthood has to pay for the pensions as well as for the children. A quick search on some numbers for Germany
Bottomline: order of magnitude for raising a child and providing good education is at least the same as for the pension. With that the calculation changes:
yr children adults retired require require family gross require pension private comment savings product cass savings 1 4=400€ 4=400€ ±0€ 1200€ 4=400€ ±0€ ±0€ 2 6=600€ 4=400€ -200€ 1200€ 4=400€ ±0€ ±0€ uups 3 4=400€ 6=600€ ±0€ 1800€ 4=400€ +200€ ±0€ debts payed off 4 2=200€ 4=400€ +200€ 1200€ 6=600€ ±0€ ±0€ 5 2=200€ 2=200€ ±0€ 600€ 4=400€ ±0€ ±0€ fortunately there were savings 6 2=200€ 2=200€ ±0€ 600€ 2=200€ ±0€ ±0€
Note that the paying off of the debts does not include any interest, and that bancrupcy of the pension is only avoided by the retirements savings of the large (6p.) generation who had to pay off the debts their parents made for raising them and had to accumulate savings for their own retirement. This was possible because they did have the economic strength, but had they not saved the surplus while working, the pension system would have been bankrupt.
A more "German" version would not have family savings, but a governmental education cass in addition to the pension cass, and cross-funding would happen between pension and education.
Here's a variant II, where the parents economize to raise their children.
yr children adults retired require require family gross require pension private comment savings product cass savings 1 4=400€ 4=400€ ±0€ 1200€ 4=400€ ±0€ ±0€ 2 6=500€ 4=300€ ±0€ 1200€ 4=400€ ±0€ ±0€ families shorten expenses by 200€ 3 4=400€ 6=600€ +200€ 1800€ 4=400€ +200€ ±0€ 4 2=200€ 4=400€ +200€ 1200€ 6=600€ ±0€ +200€ adults inherit 200€ 5 2=200€ 2=200€ ±0€ 600€ 4=400€ ±0€ +200€ still something left to inherit 6 2=200€ 2=200€ ±0€ 600€ 2=200€ ±0€ +200€ and that stays like this
The situation would be basically the same if the grandparents help saving the initial 200€. The "wealth" of 200 € that is left at the end was basically created by the savings of the 2nd year. Note that the pension cass is barely left with a ±0.
The bottomline is that with this system, a growth in total population is the problem unless the gross product increases accordingly. Note that the estimated costs for education mean that this problem is even bigger, because each child costs roughly 1 1/2 as much as a retired person (people also live of their savings in retirement, but in any case raising a child is nowhere near negligible compared to pension costs). Yet, often more children are seen as the solution to the retirement problem. That would work only if raising a child was cheap, i.e. cutting down education - not a good idea.
In reality, I guess one also needs to take into account that saved money "itches", and "wants" to get spent (maybe that's more a European problem - see edit above). Particularly if it isn't one's own savings, e.g. politicians deciding at the +200€ stage of the pension cass to cut the tax rate going into pensions. Or, the baby boomers in the first scenario may find it unfair that they should save after they have already paid the debts. So they spend the surplus, and then the system goes bancrupt.
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