It's important for investors to take hold of their futures by building a portfolio of great companies, but saving can be tough. Not everyone has the means to provide for their retirement entirely on their own. That's why we came together as a society to create a social safety net to make sure that no one spends their "golden years" in abject poverty. Decades later, our aging population poses a threat to the solvency of that Social Security system.
Social Security is designed as a pay-as-you-go system. This means that the working population contributes to the fund, but those retiring right now are drawing their benefits from that system. So even if you spend an entire career paying your Social Security taxes, it isn't your own money that you'll eventually receive. Someone else gets your contributions, just as your retirement will be funded by a younger person still in the workforce.
Sadly, even the best-laid plans can be undone by demographics. The two decades following World War II were marked by unusually high birth rates, now known as the "baby boom." When the baby boom generation exits the labor force (as is beginning to happen), it will put a huge strain on the Social Security Trust Fund. Policymakers have proposed several solutions. One of the most contentious of them is raising the retirement age.
Lord Adair Turner, former chairman of Britain's Pensions Committee, argues in an interview that Social Security cannot survive unless the retirement age is adjusted. Given Americans' increasing life span, Turner says: "We must keep stable the proportion of your life spent paying into, and receiving out of your pension system. ... You just have to look at the mathematics of it."
Watch the video below for the full interview.
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