There is mixed news about Social Security. The "bad" news is that the "Social Security Trust Fund" is basically an accounting device for transferring purchasing power from current workers/taxpayers to retirees. The funds that are in it are somewhat of an illusion, because they represent a claim that we Americans have upon ourselves. Politically, the trust fund is like a government bond in that it represents a committment of future payments to future retirees. But the economic reality is that that promise is only as good as the ability and willingness of future workers/voters to honor it.
The "good" news is that, politically, a future Congress would find it difficult to abolish Social Security altogether. (The possibility of the system going "bankrupt," in the sense of the trust fund becoming depleted, is no real problem because all that Congress would need to do to remedy that would be to transfer money from general revenues into the Social Security account.) But it is extremely likely that, as the ratio of retirees to workers places a greater financial strain on workers, it will be necessary for the real value of Social Security benefits to be reduced in some way. One way, which is actually happening, is for the age of eligibility for benefits to be increased. Another will probably be for benefits to be taxed more heavily for retirees with higher incomes. And another will be for benefits to not be increased as rapidly as overall inflation.
I think that benefits will soon be increased by including prescription drugs in Medicare (and I support that) but if so, reductions will need to be made in other benefits of the program to keep it affordable for future workers to support.
One way that future workers/voters will be able to reduce the financial burden imposed on them by future retirees will be to inflate the money supply. This is a subtle way of "wiggling out" of financial commitments. And the way to do it is by what we are seeing now -- increasing government spending without raising taxes, thereby creating the need to finance the spending by issuing more Treasury bonds, which must be purchased by the Federal Reserve creating more money, to prevent bond prices from dropping (i.e., interest rates from rising) too much.
In short, expect higher inflation and future Social Security benefits that don't keep up with it.
