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As America Ages, Part Three: Retiring baby boomers could drain Social Security

The droves of baby boomers leaving the workforce aren’t being replaced – at least not quickly enough to keep Social Security in the black.

Since 2010, the two funds managed by the Social Security Administration – one for retirees, their dependents and the dependents of deceased workers, and the other for the disabled and their dependents – have spent more than they have received in taxes, according to the administration’s 2013 annual report.

The combined funds are expected to grow until 2020 because of the interest earned off the surplus accrued over the years the baby boomers – those born between 1946 and 1964 – paid into the system.

But as more baby boomers retire – the oldest boomers started turning 65 at a rate of about 10,000 a day in 2011– income into the funds won’t be able to keep up with the payments going out.

The surplus is projected to be gone by 2033, as the oldest baby boomers turn 87, according to the report, and Social Security will be able to pay out only 77 percent of the benefits promised.

“For boomers, the biggest problem is a lot of their savings will be exhausted then and they’ll be more dependent on Social Security,” said Ryan Gruenenfelder, manager of advocacy and outreach for AARP Illinois.

At the beginning of 2012, the average monthly benefit for a retired worker was $1,230. For one in three seniors, Social Security is almost all of their income, and for two in three, it is more than half their income, according to the nonprofit National Academy of Social Insurance.

Many baby boomers are even less prepared than retirees who came before them, Gruenenfelder said.

“If you look at the savings rate for boomers, a good percentage of boomers only have $25,000 to $30,000 in assets,” he said. “That is not nearly enough to meet their needs.”

If nothing changes, the disability insurance fund’s surplus is expected to run out in 2016, with the Social Security Administration able to cover only 80 percent of benefits.

The trustees overseeing the programs recommend legislation that would either increase revenues by raising the payroll tax, or cut benefits, or a combination of the two.

To make the Social Security funds solvent without raising taxes, benefits would need to be cut by 19.8 percent, or on average $244 in monthly benefits, according to the Social Security report.

One benefit-centric proposal includes raising the eligibility age, which could be problematic for seniors who can’t afford to retire but aren’t healthy enough to work. Another idea ties the growth in benefits to the inflation rate, which would curb the growth of the program but not make it solvent.

On the flip side, payroll taxes would need to go up 2.66 percent to keep the funds solvent, the report said.

Opponents to this idea argue that it’s unfair to current workers who have to cover the benefits of baby boomers who didn’t pay enough into the system.

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