Social Security Marches On Despite Tech, Financial Problems
Social Security turns 80 this month, and while it’s in much better shape than its sister program Medicare, both the technology behind the program and its financing are becoming dangerously creaky.
A look back
Much has changed since President Franklin Roosevelt signed the Social Security Act into law on Aug.15, 1935, saying that “We can never ensure 100% of the population against 100% of the hazards and vicissitudes of life,” but he believed taxing workers to provide for their own eventual retirement would save more of the elderly from poverty.
Though the program was the first of its kind on a national scale, it did have a precedent. After the Civil War, when the population of disabled veterans and widows of fallen soldiers was higher than any other time in America’s history, a pension system was established to care for them. By 1910, more than 90% of remaining Civil War veterans were receiving benefits.
Social Security later arose as a response to another nationwide calamity — the Great Depression. In the wake of widespread unemployment, radical proposals were being floated by political figures like Huey Long, who wanted the government to guarantee everyone an income, while others vehemently opposed such plans. Social Security was Roosevelt’s attempt to create a social safety net while still preserving an element of personal responsibility by having workers fund it.
Originally, Social Security covered only workers, and then later it was expanded to include their families and the disabled.
A hundred years after the typewriter was invented in the 1860s, Social Security was still using it, employing thousands of workers to type Social Security cards, envelopes, forms and applications.
Today, you can go online to get an instant estimate of your future benefits. You can apply, change your address and get a replacement Medicare card — all without making a trip to the post office.
Bringing Social Security up to the 21st century has certainly made consumers’ lives easier. But, as businesses are all too aware, going online also means exposing your data to risks.
Though the Social Security site itself wasn’t hacked, 21.5 million Social Security numbers of people applying for a security clearance were stolen in a recent attack on the Office of Personnel Management (OPM) site, leading to the resignation of the agency’s director.
The breach brought to light basic government security lapses, such as the lack of two-step authentication. An audit by the Office of the Inspector General found that a decentralized approach to security and de-centralized technology left OPM systems vulnerable.
What about the Social Security Administration’s site?
In 2009, the American Recovery and Investment Act appropriated $500 million to update Social Security IT. Nevertheless, some technology experts say the system remains dangerously outdated, and its data is a treasure trove for fraudsters.
Even with updated technology — as companies like Premera Blue Cross and Sony can attest — it’s possible for hackers to find a way in, causing stunningly vast damage. For Social Security, which has everybody’s number, the stakes are even higher.
Social Security’s survival
An even bigger concern for Social Security is its financial unsustainability — the program’s financial reserves are due to run out in 2034, which means it will no longer be able to fund the full retirement benefits it promised without raising the retirement age, reducing benefits, or both.
How did this happen?
Experts say it’s a perfect storm of three colliding factors: a pay-as-you-go system, uneven demographics and an indexing system based on wages instead of prices.
Instead of investing current workers’ money for their own retirement, Social Security uses incoming tax money from current employees to fund those who are already retired. As baby boomers enter their retirement years, fewer workers are available to pay their benefits. And the benefit amount is pegged to the average wage index, which grows faster than the consumer price index.
Despite its problems, Social Security is such a popular program that many believe it inevitably will be fixed. Assuming that happens, many financial experts say you’d be better off delaying benefits until age 70, when you receive the maximum amount, rather than rushing in at the earliest possible age of 62.