and these are the baby boomers.

This year, a record number

of them will reach traditional retirement age.

By 2030, they'll all be 65 or older.

This is creating a fiscal problem

because fewer taxable workers means less money

for social security.

- If Congress does nothing, we're gonna hit a major crisis.

- [Narrator] Here's how this demographic shift

threatens the future

of one of the country's most important government programs

and what can be done to fix it.

Baby boomers or those born between 1946

and 1964 have been propping up the US economy for decades.

- Their mere numbers contributed for a long time

to rapid economic growth

and because every worker contributed social security

that made social security look very healthy.

- [Narrator] But as boomers started exiting the workforce

in 2008, the number of retirees grew rapidly.

- Not only do you have more retirees collecting benefits

for more years, you have fewer young people

entering the workforce because birth rates were lower

for their parents' generation,

and that creates a squeeze on both directions.

Higher expenses from all those retirees living longer,

lower payroll tax revenue

from fewer people entering the labor force

because of those declining birth rates.

- [Narrator] This puts a lot of pressure on social security

and without policy change,

projections show the trust funds will be depleted in 2034.

- There's a misconception out there

that when the social security trust fund is exhausted,

the system is somehow bankrupt and there's no money.

Social security is an integral part

of the federal government,

and as long as the federal government is not bankrupt,

social security is not bankrupt.

- What's really happening is the program is running out

of treasury bonds,

which are basically IOUs from the government.

For many years, social security was taking in more money

than it needed to pay out in benefits, so it lent money

to the government to use for other programs,

and it got IOUs in return.

- Around 10 years ago though, that situation flipped around.

For the last decade, we've been paying out more in benefits

than we've been collecting in social security revenue.

- [Narrator] But because the program

had so many IOUs stashed away from previous years,

it's been able to keep paying benefits in full

by cashing in on those IOUs.

- Right now, there's roughly $3 trillion in IOUs,

but each year that $3 trillion stash

gets a little bit smaller.

By the year 2034, all of the IOUs will have been cashed in.

- That means retirees would see overnight

about a 25% benefit cut.

- [Narrator] This number will likely increase as the number

of workers per retiree continues to fall.

- Simply because we're not about

to go bankrupt doesn't mean there's no problem.

There very much is a problem.

- [Narrator] Studies show that the majority

of Americans rely on these monthly benefits checks

for retirement income.

According to census bureau data, about 50% of people

between 55 and 66 years old have no retirement savings.

- Can you imagine right now if you had

to take a 25% reduction in your take home pay,

you still have to pay rent.

You gotta buy groceries, you gotta pay utilities.

- It's especially important for those

who don't have college degrees,

people on the lower end of the income spectrum.

- [Narrator] Fichtner says,

when retirees have less retirement income,

they also generally spend less money.

- That means less economic activity.

That means less employment

because employers have to lay off people

'cause no longer is that money coming in.

It's a ripple effect

that could be basically a senior induced recession.

- But social security is only meant to replace a percentage

of a worker's pre-retirement income

based on lifetime earnings.

So as much as 78% for very low earners to about 42%

for medium earners and 28% for maximum earners.

- This is three legged stool we talk about all the time.

It's supposed to be social security is one leg,

your employer provided pension

is a second leg and your personal savings a third.

Well, social security is financial challenges.

We don't have pensions really anymore.

About 10% of the population has pensions

and then it's hard to save on your own

when you've gotta pay off student loans

and housing costs are so high.

- [Narrator] About half of Americans

do have retirement accounts like 401Ks and IRAs,

but those are all subject to market risk.

- I hear a lot, well, those are 65 year olds.

Why do I have to worry about the boomers today?

Well, this impacts every generation that's coming up behind.

- They might not be asked

to pay a slightly higher payroll tax.

More important, they might be asked

to work a little bit longer.

- [Narrator] And like most things in the economy,

social security's funding shortfall isn't an isolated issue.

- It's one of the reasons the federal budget deficits

is as large as it is.

It means that we have to borrow money,

which means issuing bonds.

That tends to put up pressure on interest rates,

which means it's harder to afford a house.

It means that Congress might have

to cut spending on other programs like the military

or the environment in order to make sure

that there's enough money for social security.

- [Narrator] So what needs to happen to put social security

on more sound footing?

Congress needs to pass a law.

- Congress has stood still

and not enhanced social security since Richard Nixon.

- [Narrator] When and what kind of law,

that we still don't know.

There's been a number of proposed solutions over the years.

- This legislation demands

that the wealthiest people in this country

start paying their fair share of taxes,

- But policymakers generally disagree on whether

to raise taxes or cut benefits.

- You'll have two approaches to how to solve this problem,

and you're not gonna do it.

- There's probably no single magic bullet,

which will put social security on a long-term footing.

Instead, Congress is probably going to have

to look at a variety of steps

which will collectively fix the problem.

- [Narrator] But economists don't expect action

to be taken anytime soon.

- Everybody, including on Capitol Hill,

knows that social security has a problem.

Nobody, especially those in Capitol Hill,

are prepared to do anything about it.

- As we all apparently agree, social security

and Medicare is off the books now, right?

They're not to be smart. (clapping and cheering)

- We all would wish that politicians would show

the political courage necessary to tackle this now

and not wait until the 11th hour.

Benefits and changes

to retirement programs take a while to phase in.

One of the last major reforms we had

for social security were the 1983 reforms.

- [Narrator] Those amendments raised the retirement age

to 67, but it took nearly 40 years to phase them in.

- There is a 10 year window,

but we don't have 10 years to act.

- There has to be some kind of a legislative solution

that comes along between now and then.

By law, the program can't borrow anywhere else.

The program's too important, too popular for it

to basically be allowed to run out of money.