Today’s generations have a lot to worry about: the rise of artificial intelligence, taxes, inflation… and their retirement. If you were born after 1960, the promise of retiring peacefully at age 67 may be nothing more than a fairy tale. Given the economic outlook and the state of the public pension system, delaying the retirement age is a real possibility —at least according to Frank Bisignano of the SSA Commissioner.
This is not a problem of goodwill on the part of the U.S. Social Security agency, but rather a demographic and financial problem that has been brewing for decades. The state of Social Security accounts needs an urgent solution, and that solution seems to be that we will have to work longer if we want to retire with a public pension.
Full Retirement Age (FRA)
The Full Retirement Age—excuse the literary reference—seems to be the green light that The Great Gatsby tries to reach every night from his pier; something beautiful and hopeful that seems to be always elusive. To get 100% of our pension benefits, we must wait until we reach a certain age. If we want to retire earlier (at age 62 at the earliest), we will receive 30% less than the total benefits.
This FRA is increasing—there is talk of raising it to 69 or 70—but we cannot blame our current president, Donald Trump.
This decision was made by the US government more than 40 years ago, in 1983. To give you an idea, at that time Trump was too busy being a real estate developer in New York, opening the Trump Tower on Fifth Avenue and buying the New Jersey Generals American football team.
The US Pension System
It was not created in 1935 by President Franklin Roosevelt. It was a social security network to prevent poverty in old age. The initial LFRA was 65 years. According to historical calculations by the S.C.A., the life expectancy at birth for a man at that time was 59 years. The life expectancy for a woman was only 63 years.
According to the US CDC, life expectancy in 2023 is 78.4 years for the total population: 75.8 years for men and 81.1 years for women. It is obvious that a system in which today’s workers’ taxes pay for today’s retirees’ benefits has many holes that are causing it to leak. After all, the demographic pyramid is very different from what it was 100 years ago, and life expectancy has increased by 15 years on average. Our social security system did not anticipate that people would live so long or have so few children.
It has become an unsustainable dynamic; in 1950, there were 16.5 active workers for every retiree. Today, that number has fallen to just 2.7 workers for every retiree. The system only worked for a couple of generations, when people lived shorter lives and there was an influx of young people into the workforce. Today, life expectancy is much longer (thanks to modern medicine) and there are fewer births… So the math simply doesn’t add up.
How will pensions be affected?
The program currently spends more than it collects, so it has to draw on the Trust Fund reserves. It is estimated that the OASI fund will be depleted by 2033, and the combined fund (OADSI) by 2034.
Social Security benefits will not disappear completely, but they will be reduced. It is estimated that there will be an automatic cut in benefits of between 19% and 23% for all beneficiaries if no action is taken.
But let’s be honest, is there any politician or government official brave enough to reform the pension system? It’s a problem that has been brewing for decades, but no one wants to be the villain. For now, all we can do is recommend that our readers learn about 401(k)s and IRAs… because we can’t expect much from future SSA benefits.