The U.S. Census Bureau released two new reports a few days ago concerning the aging of America, and the news is somewhat startling. The baby boomer generation, persons born between the years 1946 and 1964, will help populate a cohort of 65-and-older individuals that will number nearly 84 million by 2050. That's almost double their 2012 level of 43 million.
Needless to say, these older persons will present a greater strain on many programs and services, namely, Social Security. The big question is: Will the venerable entitlement program be able to shoulder the strain?
Outnumbering the young
The Social Security Administration system depends upon an "old-age dependency ratio" – which is the ratio of persons aged 65 and over to those that are aged 20 to 64, generally considered to be of working age. Taking a look at the SSA's latest actuarial tables, the dependency ratio for was 22.8% in 2012; by 2050, the intermediate, or best estimate, projects a jump to 38.4%. Scarier still, the elderly contingent is also projected to outnumber 18-year-olds just six years later, by 2056.
That's a weighty problem, since wage taxes of the young and working are the life blood of the Social Security system. The 2013 Report of the Board of Trustees for the system also noted that changes are afoot, though not for the first time. According to the report, income into the Social Security trust fund will exceed costs only until early 2021, after which time the tide begins to turn. By 2033, the combined Old Age, Survivors and Disability Insurance and Disability Insurance funds will be depleted.
The end of Social Security?
Of course, this alarm has been raised before, and doesn't mean that Social Security will go away after 2033 -- only that the trust fund will be depleted. As analysts have pointed out, 75% of benefits would then be payable, rather than 100%. Even the Trustees point out that fact in their report.
Happily, the boomers' retirement wave was foreseen, and accommodated, by changes instituted by the Reagan administration. Still, the decrease will represent a cut in income. And, unless changes are made by congress, boomers will need to plan ahead.
Unfortunately, that doesn't seem to be happening, and it's not necessarily their fault. A recent Gallup poll shows that fewer Americans these days feel able to rely on their 401(k) plans, many of which took a hit during the last recession. In 2008, 54% of respondents not yet retired said that they planned to use these funds as a large part of their income after they retired, while only 48% say the same today.
On the other hand, boomers do seem to realize that depending too much on Social Security isn't a good bet. Though the program was never meant to be the only source of retirement income, Gallup noted that over the past 12 years, 50% to 61% of retirees depended upon SSA benefits as a major income source. At the same time, however, only 25% to 34% of those not yet retired expected Social Security to make up the majority of their retirement income.
How do people plan to make up the difference? That is unclear. In another Gallup poll earlier this year, 39% of boomers said that they would wait to retire until they were aged 66 or older, primarily because of financial limitations. Meantime, fears about not having enough money to retire plagues 59% of Americans these days. As it turns out, boomers are not depleting Social Security -- but many are approaching retirement feeling fairly depleted, themselves.
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