Will you go bankrupt before Social Security?
In his push for Social Security privatization choicepersonal accounts abolition, George Bush is raising the prospect that, some time around 2050, Social Security will go bankrupt. This claim has been refuted quite a few times, so let me raise a different answer.
If you’re a young working-age American, don’t routinely pay your credit card balance(s) down to zero each month, and don’t have top-flight health insurance, it’s odds-on, based on recent experience that you’ll go bankrupt at some point.
About two million people, or one per cent of the working-age population, go bankrupt every year, a number that has risen dramatically in recent years. So, given about 50 years in the working-age bracket, and ignoring multiple bankruptcies, it’s almost exactly even money that a given person will go bankrupt. But, not surprisingly, the risk isn’t evenly distributed. The two major causes of personal bankruptcy are health crises and credit card debt.
Looking at credit cards, the population is about evenly divided between those who pay off their balance every month, and therefore get almost-free credit, and those who run balances, pay interest and keep the card companies in business. Assuming that the two groups are fairly stable, as appears to be the case the risk of credit-driven bankruptcy is fairly low for the first group, and these are also likely to have safer jobs and better health insurance. In fact, one way of viewing the credit card business is that it needs to extract as much interest as possible from members of the second group before their highly probable resort to bankruptcy.
As I’ve mentioned previously, bankruptcy is now more common than divorce. But because bankruptcy has risen so fast, the number of people who’ve experienced it is much smaller than the number who’ve been divorced. The stigma that was associated with bankruptcy is already declining, and it’s now a private financial issue rather than the public disgrace it once was. By the time Social Security supposedly goes bankrupt in 2050, Uncle Sam will merely be joining the majority of his constituents.
fn1. Of course, if a trend can’t be sustained, it won’t be. But there’s no obvious reason why the current upward trend in bankruptcy should halt, let alone be reversed. So it seems reasonable to assume that the current rate of bankruptcy will at least be maintained in future.
fn2. Children can’t go bankrupt. Retired people can, but bankruptcy rates are fairly low for this group, and are likely to stay low as long as Social Security exists.
fn3. Normally 15-64, but for the purposes of this post, 20-69 fits a bit better.