Briefly explain why the Social Security system will face a "crisis" in the coming years

Answer 1

The pay-as-you-go Social Security system will face a crisis because as the baby boom generation moves into the retirement phase of life, beginning around 2011, the number of workers per retirement beneficiary will decline, and eventually the system will run larger and larger deficits. While the system is currently running a surplus, for the most part, these funds are used to finance current government operations. When the Social Security system enters its deficit years, the bonds held in the trust funds will be drawn down. However, in order to redeem the bonds, the Treasury will have to either raise taxes or increase borrowing. If the promised benefits were financed by increases in payroll taxes alone, the Social Security payroll tax rate would have to be increased by approximately 50 percent.