An insurance company has to invest and earn income because it commits to a particular level of premiums and payout upfront and doesn’t have the option of changing those parameters. As Simplicio explains, Congress can raise taxes or cut benefits for future generations at any time, which kind of sucks for those future generations, but which preserves the overall system.
When this argument is made, is usually uses the increase in average lifespan as the boogyman.
The greatest portion of that increased average, though, is due to decreased infant and childhood mortality. Those should not be counted as far a SS viability is concerned…they never collected, true, but they never contributed either. The increase in life expectancy of someone who lives past 25 has only increased a very few years, and this increase is largely offset by increased female participation in the workforce. Because women live longer, and never-worked widows were still eligible for SS survivor’s benefits, working women almost completely offset any problem due to longer lifespans.
Two “real” issues:
Baby boomers built up a huge surplus during their working years. This was borrowed by the US government, and replaced with IOUs. (treasury bills). Now that boomers are retiring en-mass the US government is about now having to learn to live without this source of loans…in fact it is needing to start paying those old loans back. It is needing to borrow money elsewhere to pay them back, and will have to keep doing so for 20-30 years.
As compared to inflation, average wages of workers have been flat or dropping for quite a while. Decades even. That is true even if you ignore the ones who aren’t working at all because they can’t find jobs. This lowers SS revenue, and the retirees really do need periodic COL raises to their Benefits. If average wages kept up with inflation it would offset these rising benefits, but they are not keeping up with inflation, and the ratio of retirees/workers keeps increasing.
Increasing the retirement age is a poor solution. There are only so many jobs. When older people hold them, younger ones don’t. It only helps A) Because the old people are better paid, so they make larger contributions. B)Working longer may mean the people end up dying sooner, or even before they retire at all. This might be completely offset because the older workers higher wages might displace more than one younger worker in terms of the employer’s payroll tolerance.
At most, any increase in retirement age needs to be 1/2 the increased length of retirement due to longer life spans, because for each year later retirement, you get one more year of contribution (usually at lifetime-high level) and one less year of payout. Too often I see fear mongers suggesting that because people are now living 5 years longer (or whatever) we need to increase the retirement age by 5 years.