Have you ever wondered who received the first official Social Security card? In 1936, the first official card was given to John D. Sweeney Jr., and from there a program of "social insurance" was born that provided payments to those who were unable to work because of retirement or disability. This program was designed by President Roosevelt to be self-funded, so that a person would pay into the fund and then withdraw a similar amount of funds many years down the road. (For related reading, also check out 6 Things To Know About Social Security In 2011.)

IN PICTURES: 10 Last-Minute Retirement Tips

In 2011, there is considerable concern that the program is no longer self-sustaining, and that the Social Security fund could be depleted by 2037. Here we take a look at the challenges Social Security faces going forward - and why.

Social Security Contributions
According to the Social Security Administration, in 2010, the Social Security program officially began paying out more than it was bringing in. Although economists predicted that this problem would not occur before 2017, the economic downturn of 2009, which has driven unemployment to nearly 10%, has caused many people who would have otherwise not applied for benefits to do so. It is believed that as the economy improves this shortfall will temporarily be remedied, but if you believe some economists, the outlook is still pretty bleak. (For more insight, see 10 Common Questions About Social Security.)

It is also estimated that by around 2041, payroll taxes will have to be raised by 28% in order to fund the projected deficits.

The Boomers
The massive wave of 80 million baby boomers entering retirement age is being blamed for the extra pressure on the system. 1946 (give or take a few years) began the baby boom and those boomers have been integral to funding the Social Security system and providing funding for the generation behind them. As the boomers retire, Generation X, with 15 million fewer people will have to fund the baby boomers.

The upside is that the baby boomers have created quite a surplus in the system, although these funds have been loaned to the U.S. government. As you will see, this presents a third challenge for the system. (For more, see Why Boomers' Retirement Is Different From Their Parents.)

Debt Payments
When the Social Security Trust Fund has surplus assets, it lends those assets to the federal government. If current projections are accurate, Social Security will fund itself with debt repayments from the federal government. Sounds OK, right? But there's a potential problem with that.

Some economists wonder if the federal government, which is trillions of dollars deep in debt, will have the ability to pay these debts back. If the worst-case scenario happened and the United States defaulted on these loans, Social Security would become insolvent much sooner than 2041.

IN PICTURES: Top 7 Social Security Myths - Exposed

Also, in 2011, the federal government may run up against its debt ceiling. In February of 2010, Congress passed a bill raising the maximum amount of debt allowed to $14.3 trillion dollars. If this ceiling is reached, programs would have to be cut or scaled back. There's a possibility that this could include Social Security too.

What the Government Says
If you believe the federal government, Social Security needs an overhaul but it's future is far from dire.

"The fact that the costs for the program will likely exceed tax revenue this year is not a cause for panic but it does send a strong message that it's time for us to make the tough choices that we know we need to make," Commissioner of Social Security Michael J. Astrue said in an August 2010 news release that accompanied the Social Security's Board of Trustees annual report on the Social Security program's outlook.

The Bottom Line
Social Security can be a politically charged discussion but the best way to protect yourself from these problems is to make sure you are adequately funded for retirement. Figure out how much money you need to live the way you would like and prepare for that now. Don't rely on the government to provide it for you, because the jury's still out on whether it will be able to do so. (For related information, also take a look at 10 Common Questions About Social Security.)

Related Articles
  1. Retirement

    Suddenly Pushed into Retirement, How to Handle the Transition

    Adjusting to retirement can be challenging, but when it happens unexpectedly it can be downright difficult. Thankfully there are ways to successfully transition.
  2. Retirement

    Is Working Longer A Viable Retirement Plan?

    Fully funding someone’s life for three decades without work is tricky. The result is retirement has become, for many, a 30-year adventure.
  3. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  4. Retirement

    4 Books Every Retiree Should Read

    Learn more about the current financial situations retirees are facing and discover four books that every prospective and current retiree must read.
  5. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  6. Retirement

    Should Social Security Be Privatized?

    The idea of controlling your own retirement money is one that continues to hold appeal for a large segment of voters.
  7. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  8. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  9. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  10. Retirement

    How to Fix an Error on Your Social Security Check

    For many seniors, social security benefits checks are their income stream which means the benefit has to be correct. If you spot an error, you can fix it.
  1. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  2. Do 401(k) savings earn interest?

    While there is a wide array of investment accounts available to investors, one of the most common for employees is the 4 ... Read Full Answer >>
  3. How liquid are variable annuities?

    Variable deferred annuities and variable immediate annuities are not considered liquid. Variable deferred annuities carry ... Read Full Answer >>
  4. Can you fund nonqualified deferred compensation plans with life insurance?

    It is possible to fund nonqualified deferred compensation plans with life insurance. A nonqualified deferred compensation ... Read Full Answer >>
  5. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options ... Read Full Answer >>
  6. Are 401(k) withdrawals considered income?

    All 401(k) withdrawals are considered income and subject to income tax, including capital gains. When you take a premature ... Read Full Answer >>

You May Also Like

Trading Center