The Tax Attic – June 4, 2009

Jerry Coon, Enrolled Agent

Jerry Coon, Enrolled Agent

Why is Social Security going bankrupt?

As I have written in previous articles, I enjoy going to sprint car races, particularly the winged sprint car shows put on by the World of Outlaws. It’s a traveling circus that comes to Michigan usually once a year. Sometimes they come when I’m out of state, up in Canada fishing or on vacation-darn. Sometimes they come and the show gets rained out-double darn. However, once in a while, all of the stars line up and I get to make the short drive down to Clarksville’s I-96 Speedway and see the greatest dirt show on Earth.

The Indianapolis 500 lays claim to being the “greatest spectacle in racing.” That may be, but in my opinion, the World of Outlaws has no equal when it comes to racing on the short dirt tracks. The drivers are fearless, the racing is spectacular, and where else in the world of sports can you go visit with the big stars after a night’s work? All fans can go to the pits after the races and talk with many of the drivers. They are very accessible. Try that after a Tigers game, a Red Wings game, a Lions game or the Indianapolis 500-good luck. As noted in last week’s Grand Rapids Press, the World of Outlaws announcer, Johnny Gibson, has a trademark saying as the cars line up four-wide to take a parade lap before the start of the feature event. It goes like this: “You wanted the best, you got ’em, four abreast, often imitated, never duplicated, the greatest show on dirt, the World of Outlaws!” He’s not kidding either. It truly is the greatest show on dirt!

There is another subject that I would like to discuss that also isn’t anything to kid about. It’s Social Security. According to a recent report by the Social Security Administration (SSA), the SSA will be totally out of money in 2037. I will be 85 in 2037 and my wife, Deb, will be less than 85. For my own well-being, I won’t get any more specific than that.

To say, however, that I am interested in seeing how and if President Obama and our Congress is going to deal with this issue is an understatement. I do understand they are spending a lot of time dealing with the economy and world issues, but this issue affects every citizen, including those un-born, of these United States.

Let’s discuss why Social Security is going bankrupt. When Social Security was instituted in 1935, the life expectancy for all men was less than 62 and for women was less than 65. In other words, it was rare that anyone, man or woman, would draw benefits for an extended period of time. Full benefits were payable at age 65. Now only those born before 1938 are entitled to full benefits at age 65. For those born in 1938 and later, the full retirement age has gradually risen to age 67.

Right from the start, recipients were entitled to a partial benefit at age 62. For those born before 1938, the partial benefit was 80% for the worker and 75% for a spouse. For those coming into the world in 1938 and later, that partial benefit has been reduced to 70% for the worker and 65% for a spouse. Since the life expectancy for those born in 2008 is now about 75 for men and 80 for women, those changes were called for.

This increasing life expectancy, however, is one of the issues that is causing Social Security to go bankrupt. People are drawing benefits longer and longer. If more people are paying into the system or if people are paying into the system for more years, it might actually all even out. But neither is true.

First, fewer people are paying into the system each year. The baby boomers have just overwhelmed the following generations. As time goes on, more baby boomers are retiring and are no longer paying into the system and their places are not being taken by younger generations. Those younger generations are smaller and many of them are not having children, so future generations may be smaller yet.

Second, right from the start, benefits are calculated on the highest 35 years of earnings. There just isn’t any way to get more earning years into the mix unless the age at which a person qualifies for benefits is raised.

The blunt fact is, however, that many baby boomers are retiring early either voluntarily or involuntarily. Either way, these people are paying in fewer years than projected. This is a factor in SSA running out of money. How many baby boomers don’t we all know who are retired at age 55 and drawing a pension. In previous generations, those same people would be in their peak earning years and would be paying a nice amount into the SSA system. We have people drawing benefits longer and paying in fewer years. It’s no wonder that SSA is going bankrupt.

Next week, I will discuss how SSA calculates a recipient’s benefit. This is Jerry Coon signing off.


Jerry Coon is an Enrolled Agent. He owns

Action Tax Service on Northland Drive in Rockford.

His e-mail address is

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