By Rebecca Walser
Border wall funding, a government shutdown (or a government showdown!), trade relations and tariffs between the U.S. and China, the Fed continuing to raise rates with a teetering stock market — there has been plenty to fret over this holiday season. But something else is happening quietly that is nevertheless one of the most important issues in the history of America.
I am referring to, what I label as, the coming disenfranchisement of our Social Security system, at least as we know it.
Disenfranchisement, quite a stark word, is defined as the state of being deprived of a right or privilege. As a lawyer, I should know better than to use this word in relation to Social Security, since the U.S. Supreme Court ruled in the 1960 case Flemming v. Nestor that the receipt of payments from the program was not a“right,” even where a participant had paid into the system for years.
Even so, the reality is that most Americans count on and expect that “their” Social Security, in its present form, will be there for them. But it will not – at least that is what the current math unfortunately tells us.
Make no mistake, Social Security is a pay-as-you-go system. Even though there is an estimated nearly $3 trillion in the trust fund, this simply reflects accounting entries of the net surpluses the fund has been credited with, plus interest earned, since inception. There is no actual money in the fund, just the special-issue Treasury bonds, which are in fact government IOUs. The real surpluses have been used by the federal government as a funding source of many things.
But no more – the days of surplus payments are over now and under the current system will be for the coming 75 years. For the first time since 1982, this year more benefits will be paid than revenues collected. This is no surprise to the government, as they have projected and forecasted these figures based on our demographics in the annual Trustee Report since 1941.
But as difficult as that is to swallow, that is not the issue I focus on. What consumes me is the much larger problem of what is coming. When you break down the birth rates between 1946 – 1964, you see that births peaked in 1957, followed closely through 1964. This means that about 70 percent of the Boomers have not even begun to retire yet, and beginning in 2022 the bulk of the generation will retire in a five to seven-year succession, one year after the next.
In other words, our system is now approximately 2 full time equivalent payors for every 1 recipient receiving Social Security benefits, 2-to-1, costing us more than we are taking in, and 70 percent of this great generation has yet to even be a recipient in the system. (2018 Trustee report showing 2.8-to-1 includes all workers who worked at all during the year, and is not reflective of true contributors to system.)
Keep in mind that every time a Boomer retires, they are a double negative to the federal budget as they go from being a positive contributor through payroll taxes to no contribution with their retirement (the 1st negative impact) and then they move onto the system as a recipient (the 2nd negative budget impact). The lower birth rates of Gen X and Millennials, comparatively, not including surplus immigration, does not help.
Before he was Speaker of the House, Paul Ryan asked the CBO to analyze these future problems back in 2008. The resulting report was unequivocal. If the benefits paid via Social Security, Medicare and Medicaid remained (at 2008 levels) with the retirement of the Baby Boomers, benefits would have to be cut, taxes would have to go up, or more likely BOTH.
Rock and a hard place
If you are one of those in the camp of “no politician will ever be elected that will cut our Social Security benefits,” as I so frequently hear in my work across the country, let me introduce you to another harsh reality. The timing of the mass retirement of our Boomer generation is colliding with the reality of our federal debt reaching an unsustainable critical mass.
At around $22 trillion and climbing, we will not be able to debt finance these benefits for a sustained time period. Once we hit $30 trillion in total debt, which as forecasted could happen in less than 8 years with the projected $1 trillion annual deficits, interest servicing alone will cost us more per year than we spend on Medicare and the military combined – a simple impossibility for the United States.
Thus, it is clear that the proverbial can cannot be kicked down the road any longer. The road is ending, and the cliff lies dead ahead just like the iceberg did for the Titanic.
We cannot borrow our way out. As I see it, it is a mathematical certainty that benefits will be cut (I believe on some kind of aggressive means tested basis) and taxes will go up (also likely dramatically, according to the math).
And hence the word… the coming “disenfranchisement” of Social Security – Americans being deprived of the privilege of the full benefit payments upon which they were counting. It is no wonder that Congress has expressly reserved the right to alter, amend, or repeal any provision of the Act and the U.S. Supreme Court has established that it is not a right. We must wake up and prepare accordingly.
Rebecca Walser is a licensed tax attorney and certified financial planner and author of the book Wealth Unbroken, who specializes in the strategic planning of maximizing lifetime wealth while minimizing tax through her practice, Walser Wealth Management . She earned her juris doctor degree from the University of Florida and her Master of Law degree in taxation from New York University. She is a frequent national media contributor.