You might have read this week that the U.S. birth rate, which has been sliding for years, is now at its lowest level since 1979.
Why should you care? Because this great American baby bust is likely to have an impact, perhaps a deeply painful one, on your wallet and your retirement. Allow me to explain.
Last year, Social Security began paying out more money to Americans than it took in. By fiscal 2034, which actually begins in calendar 2033, its main trust fund, the Old-Age and Survivors Insurance fund (OASI), will be depleted. Empty. Gone.
What happens then? A cut in benefits of about 23%, projects the government trustees who oversee the Social Security system.
Americans are heavily reliant on Social Security
Bad as that is, consider the following data:
- Social Security benefits represent about 33% of all elderly income.
- Among elderly Social Security beneficiaries, 50% of married couples and 70% of unmarried persons receive 50% or more of their income from Social Security.
- Among elderly Social Security beneficiaries, 21% of married couples and about 45% of unmarried persons rely on Social Security for 90% or more of their income.
In other words, tens of millions of Americans are heavily dependent — in some cases nearly completely dependent — on Social Security, and there’s a chance it could be slashed in the not-too-distant future.
Today, each beneficiary is supported by about 2.8 taxpayers. That’s projected to fall to 2.3 by the time the trust fund is exhausted.
Fewer workers are paying into Social Security
Here’s where two conflicting trends come into play. The birth rate that’s been falling for years? It eventually translates into fewer workers forking over the payroll taxes that support Social Security. At the other end of the age spectrum, the number of Americans retiring is exploding. It has doubled since 2000, and by 2034 — older people, for the first time in American history — will outnumber children.
In the meantime, seniors are living longer. It isn’t just the estimated 75 million baby boomers between the ages of 57 and 75 (boomers were born between 1946 and 1964); there are some 25 million people older than that. And within that group, there are 8 million to 10 million so-called “super seniors” who are age 85 or older.
This “silver tsunami” is crashing ashore, as I mentioned, just as Social Security’s trust fund runs out. Thus: Benefits, at current trends, would be slashed.
Everybody focuses on the “fixing Social Security” (and Medicare, by the way) aspect of this. We all know what the remedies are, and they’re all painful: higher taxes, a higher retirement age, gradually reduced benefits.
Politicians don’t like to ask voters to make sacrifices, and Americans — at least in this day and age — seem disinclined to make them.
And good luck getting Democrats and Republicans to work together to solve serious problems. Which helps explain why Social Security hasn’t been touched since 1983, when Ronald Reagan, of all people, signed a Social Security bill that included large tax hikes.
Difficult as addressing this on the fiscal side may be, the harder problem is on the labor side. Everything from student debt, career ambitions and the high cost of child care — the average cost of putting an infant in a child care center in California eats up an average 18% of household income, for example — has been cited as inhibitors to couples, or single women, from having children. And lately, a new reason not to have kids has emerged: anxiety about climate change.
No matter what the reason, the American baby bust is a headwind that will slow long-term economic growth. February’s JOLTS report showed 7.3 million job openings — huge economic growth that isn’t being captured because there aren’t enough workers to go around. Immigration could boost both the economy and tax base, but this too is a political hot potato on which politicians can’t agree.