Thinking Out Loud about Social Security Math

I ran across an interview by Alan Greenspan today in which he expressed concern about the solvency of the Social Security system.  This is what he said, “the actuaries of the Social Insurance system say that in order to be actuarially solvent through the life of the programs, we would have to cut benefits by 25 percent right now and extending into the future.”  Let that sink in--in order to get to solvency, we would need an immediate 25% cut in benefits now and forever.

Of course, no one will do that; no politician will even propose that.  To stay solvent, there must be a cut in benefits, or there must be an increase in taxes, or there must be an increase in government deficit.  There are no other solutions.  The political solution is to kick the can down the road as far as possible by deficits, since people do not vote for politicians who propose cuts to this program.

There is a widespread assumption out there that Social Security provides very poor benefits and that no one ever gets what they "put in" to Social Security.  Nothing could be further from the truth.  Of course, how much one gets in benefits depends greatly on how long one lives and on how much they earned (up to a point).  But let's look at averages, okay?

The average Social Security recipient gets $1422 per month in benefits.  So, let's say that we have a married couple, both aged 65, receiving the average total of $2844 per month in Social Security.  If you are an average American with your spouse and you both retiring at 65 and you both die at age 95, Social Security will have paid out to you (NOT including the cost of living increases that you will receive) the grand total of $1,015,920.  I am going to make a wild guess here and say that, even accounting for the present value of money, not one of my readers will have "put in" over one million dollars to Social Security.

$1,015,920. That's right--over one million dollars for the average couple, if they live for 30 years under Social Security.  Now, you can argue all you want about how much you earned it, how little it really is, etc. etc., but the bottom line is this: Social Security is guaranteeing the average American couple over one million dollars in benefits, if they live 30 years in retirement.

At the present rate of taxation, this is simply unsustainable. So, which will you choose?  Cutting benefits? Increased taxation? Increased borrowing to kick the problem down the road?  I'd be interested to know your thoughts about how to solve this troubling problem.

(For the Greenspan interview, see: https://www.foxbusiness.com/economy/alan-greenspan-must-find-way-to-resolve-basic-social-security-system)