The recession's impact on Social Security

In my last article about Social Security, I discussed how it is a "pay as you go" system rather than insurance (an annuity) or defined benefits plan ( you work for so many years and are guaranteed income for life).

Today's workers are providing the benefits to those who are collecting them now - with the hope the next generation will do the same.

Only there is a big problem with this model, the number of Social Security beneficiaries per 100 workers is growing by a huge margin. Back in 1950, there were only 6 people collecting benefits per 100 workers. In 2050 that number will be 48 beneficiaries per 100 workers. Since 1950, there have been many new and popular retirement plans to supplement Social Security income such as 401K, Roth IRA and 403B plans, but have they had any impact on reducing the reliance on Social Security?

With the recent major pullback in the very types of assets that are in those qualified plans, Social Security may be more important than ever before.

Who relies on Social Security? It accounts for more than half the income of 52 percent of married couples older than 65, and 72 percent of singles older than 65. Social Security accounts for almost all retirement income for 20 percent of married couples and 41 percent of singles currently in America. These numbers mean that Social Security is not a supplement for many U.S. citizens, it is the bulk or all of their income after they retire.

So what about all the other retirement income sources like IRA, 401K or 403B not to mention your home? People with 401K or 403B plans have seen a reduction in their account balance of 30-50 percent because of the downturn in the stock and bond markets.

Another retirement asset, the equity in your primary residence, also is down by similar percentages thanks to all those bad mortgages now in default. According to the Center for Economic and Policy Research, people from the lower to upper middle income ranges have lost a large portion of their net worth because of the housing bust. Those who planned on cashing out of their house to fund their retirement are now looking at zero equity and the possibility of not being able to sell their homes when they want to retire. All these factors lead to more and more people relying on Social Security as the cornerstone of their retirement income.

Last, but not least, when Social Security was set up by FDR, a person that actually reached 65 was considered really old. Due to infant mortality rates back then, longevity was closer to 58, so the possibility that someone would actually use more in benefits than they contributed was rare. Today, the average lifespan for a man in the U.S. is 78 and for a woman it is 80. That means a lot more years in retirement and a realistic assumption that a person will use more in benefits than they ever contributed in payroll tax to Social Security benefits.

Will all these factors create the perfect storm that will implode Social Security?

Is there anything that can be done to save this sacred cow of entitlements?

Since contributions were not voluntary, the government is on the hook for implied benefits for all who were forced to pay these taxes. Is is reasonable to say to those who have faithfully paid into the system, sorry, we miscalculated and cannot pay you what we said we would?

As a person who has worked since the age of 17, I am not interested in an apology. I had no choice to pay taxes and when I hear that Social Security may be insolvent when it comes to my turn for benefits, I get more than a little upset.

What can be done to preserve Social Security benefits for me and future generations? I will discuss this next time.

• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol_perry@worldnet.att.net or 267-5358.