When it was enacted, the nation’s elderly were in dire straits. The Depression devastated their incomes and savings; over fifty percent were poor, more than the rest of the population. Even if they were willing to take it (and many were not), only a small percentage received government aid.

Social Security changed all that. It enabled the elderly to get help through a program that resembled a pension, not public assistance. What they paid during their working years, many believed, came back with interest after they retired. Largely because of this help, the elderly’s poverty-rate is now below ten percent, much less than that of the rest of the population.

Yet, it was always a fiction that the elderly received only what they had paid for. Social Security was designed so that taxes collected from the current generation of workers financed the benefits going to retirees and gave them more than what they had contributed. As long as the ratio of workers to retirees was high, this fiction did well. But the ratio has been steadily declining, meaning either higher taxes or other sources of revenue will be needed in the future to provide what retirees think they have earned.

A better course would be to get Americans to save more during their working years, to create, in other words, a real pension plan. There are many ways of doing so. But none will succeed until the octogenarian Social Security gives up the illusion of its youth.

Sources:

Poverty-rates during the Depression
“Social security and elderly poverty,” National Bureau of Economic Research
Current poverty-rates
Worker-retiree ratios