Social Security has run a surplus since its inception. Since 1983, the program has run a dramatic surplus. However, due to unified budgeting, the practice of including social security surpluses (or shortfalls, were there any) in the government’s general accounting, these receipts have served to offset annual budget deficits. As of 2005, the Social Security program has amassed a surplus of $1.86 trillion (Social Security Online, 2006). However, this “result[s] in the issuance of Treasury bonds to the [Medicare and Social Security] trust funds in years of annual cash flow surpluses” (Social Security Online, 2005). This means that government “buys” bonds from itself. Furthermore, “since neither the interest paid on the Treasury bonds held… nor their redemption, provides any net new income to the Treasury, the full amount of the required Treasury payments to these trust funds must be financed by some combination of increased taxation, increased Federal borrowing and debt, or a reduction in other government expenditures” (Social Security Online, 2005). These bonds are also excluded from the accounting of the National Debt. Ultimately, this means that the social security Trust Fund is merely an accounting ruse and that these paper surpluses have long since been spent through mismanagement of funds. Despite political rhetoric to the contrary, the current Social Security system is entirely a “pay as you go” program. Funding to retirees, beneficiaries drawing income from the system, is provided directly from current worker contributions.
The earlier you retire, the longer you are likely to live. While you need a significant amount of reserves in order to cover your annual expenses, Social Security can be a big help. Depending on your age, you can collect partial or full benefits.
For rough numbers, if you made $45,000 per year, you could expect Social Security benefits in the neighborhood of $15,000 per year. The problem with these benefits is that you wouldn’t be able to collect them until you were 62 and you would still need a way to come up with $30,000 in annual income from your personal savings. That is just the tip of the iceberg of the problems with Social Security, though.
In 2004, President Bush enlightened us all to a potential collapse in the Social Security system. Looming on the horizon is the fact that 78 million Baby Boomers will be retiring. In a country of only 302 million people, that is a significant number of retirees. Couple that with the fact that currently there are 3.1 workers to support 1 retired worker, but as time progresses there will be only 2 workers to support 1 retired worker.