What Income Do We Depend On?

Browsing through the Census Bureau’s visualizations, I was grabbed by their sources of income data. It displays the importance of Social Security.

The Income We Depend On

Predictably, we depend the most on earned income when our age is between 18 and 49. Then, growing older, the role of earnings dips, and social insurance becomes more important:

Next, shifting our lens to education we can see that attending college makes a massive income difference. The more years we’ve attended school, the less we depend on social insurance. In addition, an advanced degree could come with “other income”:

A third perspective that focuses on gender provides yet another set of income facts. Women depend more on social insurance:

And finally, reflecting the original purpose of Social Security, retirees depend on it:

Our Bottom Line: Social Security Solvency

Background

As a pay-as-you-go program, Social Security is primarily financed by taxes paid by today’s workers. No, our own money is not saved and then returned to us. Instead (oversimplifying), it is a money transfer that goes from the young to the old.

The Trust Funds

In addition, money resides in several trust funds. Whenever revenue exceeds spending, the trust fund gets money. If revenue is inadequate, money is withdrawn. Whatever is left in a trust fund is invested in U.S. government securities that pay interest. Those securities are sold if a Social Security Trust Fund needs more cash.

Projections

Replenished whenever the System’s income exceeds its expenses, the trust funds are the back-up. And happily, they have been there for the extra money we’ve needed since 2021. However, if all continues as the Trustees predict, little by little, the main trust fund will shrink until 2033 when it will be empty. Having inadequate income, the System’s payout would have to be 79% of “scheduled benefits.

And that is only the beginning.

Moving our time horizon further ahead, we see the deficits increase. Over the next 75 years, the projected OASDI (Old-Age, Survivors, and Disability Insurance) shortfall will be close to 3.5% of payroll income.

The Problems

In summary, the United States has three big Social Security problems. We need relatively more workers and fewer older people.  But that probably won’t happen. We need people to retire later. But many workers are unable to wait. And we need more revenue. But no one wants higher taxes (although raising the wealthiest peoples’ taxes is the most popular policy solution)

My sources and more: A wealth of information, the Census Bureau’s visualizations were where I copied all of my graphics. Then, parts of “Our Bottom Line” were in a past econlife post. However, for still more, the 2024 Trustees Social Security Report is a possibilitiy.