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Social Security to Go Belly Up Sooner: Contraception has Consequences

The widespread practice of contraception and abortion reduced U.S. fertility rates from 3.4 children per female in 1963 to 1.8 children per female by the mid 1970’s. I pointed out nearly 20 years ago that, with fewer workers paying into the system, and a huge number of boomers ready to retire, Social Security’s Ponzi-style financing scheme was not financially solvent in the long-run, (See my article on “Contracepting Social Security,” available at

The passage of time has not improved the problem. as the latest Social Security Trustees’ report makes clear. (I suspected something was amiss when the report, which usually comes out around April Fool’s Day, was delayed until May 12, 2009.) Benefit costs will exceed payroll tax revenues in 2016, one year earlier than previously estimated. The insolvency dare — the date when all Social Security assets are exhausted — is now estimated for 2037, four years sooner than last year’s projection, The long-term actuarial deficit is now said to be 2.00%, up from 1.7% last year for a dismaying 18% increase. The dollar shortfall over the next 75 years is projected to be $5.3 trillion dollars. (

Social Security Commissioner Michael Astrue predictably blamed the economic downturn, but indicated that “faster reductions in mortality” were also to blame, Payroll taxes — the most regressive form of taxation in the U.S. — were down significantly because people were losing their jobs. Even worse, from the Trustees’ standpoint, was that people were living longer. Of course, folks who live longer get benefits for more years, meaning that improvements in mortality lead to a deterioration in the system’s finances.

Still the system pulled in $805 billion in Old Age, Survivors and Disability taxes while paying out only $625 billion in benefits. That left a surplus of $180 billion — nearly 30 percent —; for the Congress to spend. And spend it they did. Then they wrote promissory notes to the Trust Fund. Those IOU’s represent the sole assets of the Social Security System, over $2.5 trillion.

I requested that the Social Security’s actuarial service provide me with information regarding cash outflows from the system. I wanted to know the rate at which people reaching age 62 are requesting early retirement, particularly relative to the number requesting early retirement in past years. An increase in the number taking early retirement could affect the cash flow of the system between now and the 2016 cash-flow reversal date, and send the Congress and the IRS on a hunt for more tax revenue even sooner. (The long-term actuarial effect of early vs. “normal” retirement is the same, because those who retire prior to age 65–67, the “normal” retirement age, get less money each month than those who retire on schedule.)

Writing for the Office of Public Inquiries, Sheryll Ziporkin, Associate Commissioner, responded that the birth cohort of 1940 retired at the rate of 882,600 at age 62 in 2002. During 2007, the birth cohort of 1945 — a cohort 12% larger than that of 1940 — retired in numbers of 806,000. This represents a 9% reduction in early retirement for the younger cohort.

The early Boomers, then, are working longer than the previous generation, and are retiring later.

What Ms. Ziporkin did not tell me slipped out quietly from the Trustees in late September. The Ziporkin report did not tell me what the actuaries already knew: the year 2007 saw lower retirements than expected, but with the troubles in employment, 2008 became a disaster. Retirement applications are currently up by 23%, and disability applications are up by 20%. That means for the first time in a generation, Social Security now has a cash flow shortfall, more than five years earlier than originally expected.

The Trustees will now have to cash in those special T-bonds earlier and in greater quantities than they originally planned. General revenue (read “income taxes”) will have to make up the difference. Otherwise, Social Security payments to younger generations — those now paying the payroll taxes — will need to be scaled back.

Almost ten years ago, Steve Mosher and I appealed to Congress to restore long-term solvency to the system by stopping the tax penalty for having children. On the front end, payroll taxes for workers with more than three children could be reduced or even eliminated. On the back end, benefits for those having fewer than three children could be reduced, Such a pro-natal policy would not solve the short-term problem, but encouraging Americans to have more children in this way would preserve a viable system for our grandchildren.

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