Are Boomers to Blame for Social Security's Struggles?

A little over two weeks ago, our nation's most successful social program, Social Security, celebrated its 85th anniversary since being signed into law. Today, it's responsible for providing benefits to over 64 million people each month and single-handedly pulling more than 22 million of these recipients out of poverty.

a man wearing glasses: Are Boomers to Blame for Social Security's Struggles? © Provided by The Motley Fool Are Boomers to Blame for Social Security's Struggles?

Unfortunately, Social Security is also facing a nearly $17 trillion overhang.

Earlier this year, the Social Security Board of Trustees released its annual report highlighting the short-term (10-year) and long-term (75-year) outlook for the program. In that report, the Trustees estimated there to be $16.8 trillion in unfunded obligations between 2035 and 2094. Based on long-term income and outlay projections, Social Security's $2.9 trillion in asset reserves (i.e., its net cash surplus built up since inception) is expected to be gone by 2035, at which point sweeping benefit cuts of up to 24% may be passed along to retired workers to keep the program solvent.

a man wearing glasses talking on a cell phone: A older person in deep thought, with their hand on their chin. A older person in deep thought, with their hand on their chin.

Are baby boomers responsible for Social Security's $16.8 trillion cash shortfall?

How exactly does the most-prized social program go from being fully funded over the long-term in 1984 to staring down an almost $17 trillion cash shortfall as of 2020? Some would point the finger of blame at baby boomers.


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Boomers, who are traditionally defined as being born between 1946 and 1964, have been a boon to the Social Security program for decades. Since the 12.4% payroll tax on earned income accounts for the lion's share of revenue collected by the program each year, the influx of boomers into the workforce decades ago meant a steady and growing stream of revenue for Social Security.

However, there's a downside to this influx. Now that boomers are retiring, the number of beneficiaries receiving Social Security is soaring.

The Social Security program counts on a steady stream of new workers entering the labor force to help provide benefits for those exiting the workforce via retirement. As boomers have begun stepping aside, there simply haven't been enough new workers to take their place, and this is expected to lead to a decline in the worker-to-beneficiary ratio.

But are boomers really to blame for this mess? Though their retirement is most certainly weighing on the worker-to-beneficiary ratio, I'd hardly call being born a plausible reason for blame.

If you want to point the finger at something for Social Security's struggles, don't make it boomers. Instead, blame the following three trends.

A chalkboard drawing of a seesaw, with a rich stick figure outweighing a family surrounded by question marks. © Getty Images A chalkboard drawing of a seesaw, with a rich stick figure outweighing a family surrounded by question marks.

Growing income inequality

To begin with, assign some of the blame for Social Security's woes on growing income inequality. This widening gap between the rich and everyone else is hitting Social Security in two ways.

First, as noted, the 12.4% payroll tax on earned income is the program's primary source of revenue. In 2020, all earned income between $0.01 and $137,700 is subject to the payroll tax, with earnings above $137,700 exempt. Between 1983 and 2016, the amount of earnings exempted from the payroll tax has surged from a little over $300 billion to $1.2 trillion. This means that, in a typical year, more than $150 billion in potential payroll tax revenue escapes the system.

The second issue with income inequality has to do with access to healthcare. The wealthy usually have no financial constraints when it comes to receiving preventive care or buying prescription medicine. That's not always the case with lower-income Americans. As a result, the rich are significantly outliving lower-income workers. This has allowed the wealthy to not only pocket a larger monthly benefit from Social Security, but to also receive an above-average payout for a long period of time.

a person holding a baby: Parents cradling a newborn baby in their arms. © Getty Images Parents cradling a newborn baby in their arms.

Historically low birth rates

If you want to point your finger at anything, you might blame millennials for record-low birth rates.

As I mentioned earlier, the Social Security program counts on a steady stream of replacement workers to provide the payroll tax revenue that'll cover benefits for retirees. But over the past decade, birth rates in the U.S. have been declining at a precipitous rate. If this trend continues, the worker-to-beneficiary ratio will be pushed even lower, more than likely widening the estimated cash shortfall in Social Security over the long term.

This decade-long decline in birth rates can be attributed to:

  • Millennials waiting longer to get married and have children.
  • Fewer unplanned pregnancies.
  • Easier access to contraceptive devices and medicine.
  • A weak U.S. economy that's discouraged couples from becoming parents.

Without an uptick in births soon, this historically low birth rate could become a trillion-dollar problem for Social Security.

a close up of a flag: An American flag flying behind a barbed wire fence. © Getty Images An American flag flying behind a barbed wire fence.

Reduced levels of net legal immigration

You can even blame immigration for Social Security's struggles.?

Legal immigration is a net positive for Social Security. The program counts on a steady level of net legal immigration into the country each year. Since migrants into the U.S. tend to be young, it means they'll spend decades in the labor force contributing via the payroll tax. According to the Trustees' intermediate-cost model (i.e., the model of what's likeliest to happen), 1,261,000 migrants a year on average are needed to simply maintain the expectation of a $16.8 trillion cash shortfall over the long run.

But data provided by the St. Louis Federal Reserve shows that net legal immigration into the U.S. has been nearly halved over the past two decades to an average of 954,806 net migrants per year, based on a rolling five-year span, ended in the first half of 2017. Similar to declining birth rates, if net legal migration into the U.S. doesn't pick up soon, we could be looking at trillions in added costs that will be tacked onto the estimated $16.8 trillion shortfall.

Blame boomers for Social Security's struggles? I don't think so.

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Video: How much you'll have if you invest $1,000 per month until you retire (CNBC)

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