The Changing Demographics Of Social Security

In April 2012, the Trustees of Social Security released a report on the health of the system.  In that report, the Trustees projected that Social Security will reach an insolvent state in 2033, three years sooner than was projected in the 2011 report.  The latest figures mean that anyone who is 46 or younger can expect to retire after the Trust Fund is gone.  Anyone who is 63 can expect to live long enough experience a reduction in benefits unless the system is changed.

The 2012 report radically changes the demographics of benefits in the Social Security system.  Data from the US Census Bureau suggests that nearly half of voting-aged Americans will retire after the Trust Fund is gone.  Only 22% of voting-aged Americans can expect to be unaffected by the benefit cuts.  The balance expect to live long enough to lose benefits to some degree.

For nearly 70 years, Social Security was the third rail of politics.  It enjoyed an immunity from ineffectiveness as a majority of voters were willing to overlook its impending failure because they did not have a personal stake in that failure.  That immunity is ending as more and more people are faced with the prospect of feeling the effects of failure on a personal level.

2010 seems to be a focal point where politiicians started to realize that they cannot take 50% of the population for granted. 2010 was the first year in which 50% of the voting population was facing substantially reduced benefits. 2011 was the first payroll tax cut in history. 2011 was also the first year in which mulitple national candidates called the system a ponzi-scheme.  Social Security isn't the 3rd rail anymore.

What does substantially reduced benefits mean?  In 2010, we used 1961 as a cut-off.  Someone born in 1961 could expect to live to roughly 81.  That person is scheduled to retire in 2028 and live to 2042.  In 2010, that person could expect to get full-benefits for 8 years and reduced benefits for 6.  Today that person can expect to get full-benefits for 5 years and reduced benefits for 9.

The key issue to understand about Social Security reform is that the demographics the status-quo never improve.  People who are added to the voting base do not stand to collect full-benefits.  The number of people who expect to collect full benefits can only decrease.  It is not reasonable to think that politicians will not emerge to serve this voting block.