Kathleen Casey-Kirschling signed up yesterday for social security benefit as the first baby boomer in America. Kathleen was born on January 1, 1946, at the stroke of midnight, which makes her officially the first in a long line of baby boomers entitled for this benefit after retirement. There are 80 million other boomers behind her. But, first a little recap.

Who are the baby boomers?

A baby boomer is someone who was born between 1946 and 1964 in United States, United Kingdom, Canada and Australia. After World War II, there was a tremendous demand for goods and services in the free world to replenish wartime damages, and United States became the chief supplier of such goods in an effort to rebuild the economy of other countries.

This in turn led to a vigorous economic growth in America which, coupled with higher education, brought bigger income for average American families, and allowed them to raise more children. This baby boom began in 1946 with a spectacular rise in birth that peaked at 4,300,000 in the year 1957 before leveling off, and the number began falling sharply in 1964, marking the end of the boom.

What is a social security benefit?

This is a financial benefit given to the current retirees (along with disabled people, survivors of workers who have died, and dependent of beneficiaries) from the tax dollars paid by the working population. Part of our income is deducted as a “social security tax”, which is used to support this benefit program. So, yes, a large chunk of our collective social security tax will be used up by this mass of baby boomers.

Social security is not designed to totally support a retiree. Instead it replaces about 40% of your average income when you retire. Standard estimates suggest that you will need 70-80% of your current salary to live as comfortably after retirement. According to this 2005 article, there are over 157 million Americans paying social security tax today, and more than 47 million retirees receive monthly social security benefit.

Can this program continue to benefit all retirees?

That is the big question today. After all, there are 80 million more of them about to come knocking. To put the problem in perspective, after World War II, there were 44 working people paying social security tax for every retiree benefiting from the program. That ratio has now dropped to 3:1, and in another decade, there will be more going out of the social security coffer than coming in. After 35 years, the system is expected to go bankrupt.

But it is not all doom and gloom for the boomers. Because they earned more, they invested more, and each of them on average has $140,000 in retirement savings, compared to a mere $34,000 for their parents (current retirees). Also, they benefited from the housing and stock market booms, and their median household wealth is estimated to be close to $600,000, up from the near $450,000 for current retirees.

Is there a fix to the social security crisis?

Of course there is. The government can always raise taxes, or cut benefits, or do both. But these are not popular solutions. Instead, what we ourselves should do is save and invest more aggressively. Let us not forget that by the time most of us retire, we will be behind those 80 million people when it comes to collecting our social security benefits. And in all likelihood, there will be nothing left to collect.

See related posts:

1. Inflation and retirement
2. Rich gets richer, poor gets poorer