This week, I met with some of our fellow citizens from across the country to discuss one of the great responsibilities of our nation: strengthening Social Security for our children and grandchildren.
For 70 years, the Social Security system has fulfilled the promise made by President Franklin Roosevelt, keeping our elderly citizens out of poverty, while assuring younger Americans a more secure future. Along with employer-funded pensions and personal savings, Social Security is for millions of Americans a critical element to their plans for a stable retirement. And for today's senior citizens and those nearing retirement, the system is sound. But for younger workers, Social Security is on the road to bankruptcy. And if we do not fix it now, the system will not be able to pay the benefits promised to our children and grandchildren.
When President Roosevelt signed the Social Security Act in 1935, the average life expectancy was about 60 years, which meant that most Americans would not live to become eligible for benefits, then set at age 65.
Today, most Americans enjoy longer lives and longer retirements. And that presents a looming challenge. Because Social Security was created as a pay-as-you-go system, current retirees are supported by the taxes paid by current workers. Unfortunately, the ratio of workers to retirees is falling steadily. In the 1950s, there were about 16 workers paying in for each person drawing out. Today, it's about three workers for every beneficiary. And by the time today's workers in their mid 20s begin to retire, there will be just over two.
What this means is that in the year 2018, the system will go into the red -- paying out more in benefits each year than it receives in payroll taxes. After that, the shortfalls will grow larger until 2042, when the whole system will be bankrupt. The total projected shortfall is $10.4 trillion. To put that number in perspective, $10.4 trillion is nearly twice the combined wages of every single working American in 2004.
Every year we put off the coming crisis, the higher the price our children and grandchildren will have to pay. According to the Social Security trustees, waiting just one year adds $600 billion to the cost of fixing Social Security. If we do not act now, government will eventually be left with two choices: dramatically reduce benefits, or impose a massive economically ruinous tax increase. Leaving our children with such a mess would be a generational betrayal.
We owe it to the American worker to fix Social Security now. And our reforms begin with three essential commitments. First, if you're receiving your Social Security check, or nearing retirement, nothing will change for you. Your benefits are secure. Second, we must not increase payroll taxes on American workers because raising taxes will slow economic growth. Third, we must give younger workers -- on a voluntary basis -- the option to save some of their payroll taxes in a personal retirement account.
Unlike Social Security benefits, which can be taken away by politicians, the money in a personal account would be yours. And unlike the money you put into Social Security today, the money in personal accounts would grow. A child born today can expect less than a 2 percent return after inflation on the money they pay into Social Security. A conservative mix of bonds and stocks would over time produce a larger return. Personal accounts would give every younger worker, regardless of income, the chance to save a nest egg for their later years and pass something on to their children.
Saving Social Security is an economic challenge. But it is also a profound moral obligation. Today's young Americans deserve the same security their parents and grandparents enjoyed. Because the system is broken and promises are being made that Social Security cannot keep, we need to act now to strengthen and preserve Social Security.
I look forward to working with members of Congress from both parties to keep the promise of Social Security.
Thank you for listening.