Running out of other people's money

American Institute for Economic Research: "The War on Retirement"

Ironically, this war on retirement began with Social Security in 1935. Rather than establishing a forced savings program wherein people would save money during their working years and have that money returned to them during retirement, the government established a Ponzi scheme wherein later participants paid off earlier participants. As with all Ponzi schemes, the program was sustainable only if there were more people paying into the system than were receiving benefits from it. By the early 1980s, too few people were paying in, and Congress fired its first salvo at retirees by making previously tax-free retirement benefits taxable. This tweak in the rules breathed new life into the Ponzi scheme, and Social Security reserves once again grew. But the scheme faltered again in 2010 and since then, Social Security has been paying out more than it brings in. Current estimates have the trust fund becoming insolvent by 2035.

To keep this bloated program afloat, Congress will eventually be forced to fire yet another salvo when it either raises workers’ taxes or reduces retirees’ benefits. And with each passing year this albatross around workers’ necks will become heavier.

The only way the Social Security Ponzi scheme could keep on running was if Americans keep pumping out kids to become workers paying into the system.  Yet birth rates have been steady declining for the last six years leading to this moment: "U.S. Birthrate Fell By 4% In 2020, Hitting Another Record Low."  

Social Security contains the seeds of its own demise.  In the aforementioned year of 2035, per current law, once the Trust Fund is depleted, benefits will be automatically cut by 25% since the program can only pay out benefits equal to income.  For a program that already has a negative rate of investment return (unless you live over 90), this benefit cut will really expose the house of cards.