President Franklin D. Roosevelt signed the Social Security Act into law back in 1935. Since that time, Social Security has been an invaluable safety net for those who are unpleasantly surprised by how much they need to retire. It also helps those who have suffered an unfortunate financial mishap that may have snatched their nest egg away, just when they needed it most. It represents a hard-earned reward for years of paying into the system after time served in the labor force. And it's a nice chunk of change for those who were savvy or lucky enough to have saved enough on their own, without Uncle Sam's help. Overall, there's no denying that Social Security does our society a ton of good.
The not-so-good
But can we count on it to be there for us down the road when we retire? Probably not. The topic of Social Security is infinitely complex, because of the millions of lives it affects, the underlying actuarial factors that influence payout rates, and the way the government funds those payments. Rather than delve into all of the dirty details, I'll list a couple of basic reasons why I find the program unsustainable in its current form. I'll also give my recommendation for what Fools can do regardless of whether Social Security remains solvent.
Increased life expectancy
Back in 1900, the average American was expected to live only to age 50. Over the past 100 years, that number has steadily moved upward, thanks to dietary advancements and to improvements in health care from the likes of Pfizer (NYSE:PFE) and Merck (NYSE:MRK). When Social Security was created, life expectancy was closer to 60, while in 2000, it reached nearly 80. It stands close to that number today, and can reasonably be expected to continue improving. That also means our mortality rate has reached all-time lows -- including infant mortality.
At this point, you might be asking why the natural retirement age for first receiving Social Security is 65 years of age, or even why you can elect to start receiving benefits as early as 62. It's unquestionably a good thing that people that are born healthier and live longer, but that does an extra burden on our government, and it explains why Social Security outflows could exceed inflows just a little more than a decade from now.
An aging America
Baby boomers -- the largest single generation of people ever born in this country -- start to turn 60 this year. Born between 1946 and 1964, they were the catalyst behind the social and economic trends of the swinging '60s, and they're now bearing responsibility for rapid asset appreciation as they save for retirement and purchase second vacation homes. As this group begins to exit the job market, the big questions are how far those asset prices may fall as they get spent on retirement, and whether there will be enough remaining workers to cover the boomers' ballooning Social Security benefits.
For the statistics gurus, the number of Americans 65 and older is expected to nearly double by 2050, and there are currently about four workers for each retired person. Again, the government has not done enough legwork in planning for potentially negative asset returns, and for an understaffed workforce paying into Social Security.
Payouts for the rich?
One last issue I'll mention is the need to cover wealthy individuals who don't even need Social Security. Is it necessary, or even fair, to give them benefits?
The Foolish final word
These concerns are important, and they'll be the driving force for other key issues, including health-care benefits and economic growth and development. But Social Security remains the most important for retirees aiming to relax and take cruises well into their golden years. It will be even more vital for those who cannot afford a comfy retirement on their own.
Regardless of what happens with Social Security, Fools would be best prepared to conclude that it will fail, and that they will instead need to go it alone in planning their retirement. There's still no guarantee of the outcome, but it's better to do all you can to ensure you're safer, rather than sorry. Changes will have to be made to the Social Security system to ensure that those caught without a retirement safety net won't fall too far from home. In the meantime, think about the benefits of compounding interest and growth in your portfolio.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.
Pfizer is a Motley Fool Income Investor recommendation, and Merck is an Inside Value selection. Take any of our investing newsletters -- includingMotley Fool Rule Your Retirement-- for a free, 30-day spin.
Fool contributor Ryan Fuhrmann is long shares of Pfizer but has no financial interest in any other company mentioned. Feel free to emailhim with feedback or to further discuss any companies mentioned here. The Fool has an ironclad disclosure policy .
