With the increased political debate about the future of Social Security in America, many people worry that they or their children will not receive the same benefits in the future. A recent Gallup poll showed that 51% of pre-retirees aged 50-64, 49% of workers aged 30-49, and 33% of millennial aged 18-29 say they are concerned about their benefits. While many people consider there to be flaws in the American Social Security system, the proposition that this system is in serious danger of closing down, is not true. It is almost impossible that this program could go broke because it is funded by payroll taxes—which are incurred by the working population.
There are good reasons for people to be concerned about Social Security as for many people it is their only guaranteed retired income. This program impacts almost every older American: according to the Social Security Administration (SSA) , 97% of adults aged 60 to 89 currently receive or will receive Social Security. Generally most Americans do not mind paying the payroll taxes towards Social Security because they know this will benefit them when they are old aged and cannot work anymore.
It is important to also clarify how the Social Security system in America works in order to better understand this topic. It is considered a “pay-as-you-go” system, which means that payroll taxes for today’s workers’ pay for those receiving benefits today. When you retire, you depend on receiving your Social Security retirement benefits from the payroll taxes of those working currently. Thus, this does lead to a potential sustainability issue for this program, as the United States is increasingly becoming an older population and in turn, has a higher proportion of retirees.