Understanding Social Security in One Easy Lesson

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Over at the Economist, Erica Grieder has given up on Social Security:

Every so often I get a document from the Social Security Administration in a green-edged envelope, and I open it straight away, thinking it might be important. Instead, I find that it’s just a statement of my Social Security earnings and future benefits, a concept so absurd that I immediately recognise it for fiction….If I stopped working now, this document says, I would receive a couple thousand dollars a month in benefits at whatever age it is they suggest I retire, something I obviously do not expect to ever be able to do.

I just don’t get it. Why do smart people keep saying stuff like this? Medicare is a problem. But unless you believe that the United States is literally going to collapse in the near future, Social Security isn’t. Period.

The weird thing about this is that Social Security isn’t even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic. The chart on the right tells you everything you need to know: Right now, Social Security costs about 4.5% of GDP. That’s going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.

That’s it. That’s the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so. And if we do something in the middle, then taxes will go up, say, 1% of GDP and benefits will drop to about 92% of their promised level. But one way or another, at some level between 75% and 100% of what we’ve promised, Social Security benefits will always be there.

This is not a Ponzi scheme. It’s not unsustainable. The percentage of old people in America isn’t projected to grow forever. Lifespans will not increase to infinity.1 Taxes go in, benefits go out. It’s simple.

Now, Social Security is not a very generous program, so it’s possible that you won’t want to retire on its modest benefits. But short of some kind of financial apocalypse — in which case we’ve got way bigger things to worry about anyway — Social Security benefits will be there for everyone alive today. Why is it that so few people seem to get this?

1Well, sure, they might. Who knows what medical breakthroughs we’ll come up with? But lifespans have been increasing at a very slow rate for many decades now, and there’s nothing on the horizon that suggests this will change suddenly. If it does, we’ll have to deal with it when it happens, but there’s no reason to think we should plan for it now.

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We have a considerable $390,000 gap in our online fundraising budget that we have to close by June 30. There is no wiggle room, we've already cut everything we can, and we urgently need more readers to pitch in—especially from this specific blurb you're reading right now.

We'll also be quite transparent and level-headed with you about this.

In "News Never Pays," our fearless CEO, Monika Bauerlein, connects the dots on several concerning media trends that, taken together, expose the fallacy behind the tragic state of journalism right now: That the marketplace will take care of providing the free and independent press citizens in a democracy need, and the Next New Thing to invest millions in will fix the problem. Bottom line: Journalism that serves the people needs the support of the people. That's the Next New Thing.

And it's what MoJo and our community of readers have been doing for 47 years now.

But staying afloat is harder than ever.

In "This Is Not a Crisis. It's The New Normal," we explain, as matter-of-factly as we can, what exactly our finances look like, why this moment is particularly urgent, and how we can best communicate that without screaming OMG PLEASE HELP over and over. We also touch on our history and how our nonprofit model makes Mother Jones different than most of the news out there: Letting us go deep, focus on underreported beats, and bring unique perspectives to the day's news.

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