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It was based on the assumption of youth, but the money was supposed to be kept separate. It was never invested very well (this is a government program, after all) but very early on, it became a fund that other programs could dip into and then it was not invested at all.

Other countries - such as Chile - have actually started funds that have been able to make generous one-time payouts followed by comfortable annuity payments simply by taking this huge wad of cash and investing it. We didn’t do, and now we no longer even have any cash to invest.

The surpluses were supposed to be kept separate. At its heart, however, Social Security has always been "pay as you go". The surpluses were more of a "rainy day fund" for short-term fluctuations in tax receipts or benefit payouts.

So while the fact that the surpluses weren't invested well and that Congress raided the trust fund certainly hurt matters, fixing those problems wouldn't fix the fundamental problem with the system. Chile's system is fundamentally different because it was never designed as a pay as you go system.

The "trust fund" was never meant to be the primary source of benefit payments. The primary source for benefit payments has always been current payroll tax receipts. The main problem is that the pool of recipients has grown faster than the pool of taxpayers, largely as a function of increased longevity.

That number of 1.75 wage-earners per SS beneficiary is particularly worrisome since that is the last number before the Boomers start to retire. We're about to see larger numbers of people reaching retirement age than we've ever seen, and if anything, these people are going to live longer than their predecessors. The pool of recipients is going to boom.

At the very same time, growth of the labor force is going to slow dramatically. The generation that followed the Boomers ("Generation X") is significantly smaller. My age cohort in particular - birth years 1976-1980 - is the smallest age cohort currently alive and under the age of 55. We'll be hitting our peak earning years right at the same time that the retiree population will likely peak when the last and largest group of Boomers (born 1961-1965) retire.

Of course, all these demographic problems are well-documented. The one bit of good news there is that we don't have it as bad as Europe or Japan, both of whom will actually see their workforces decline. However, there's another fundamental problem that don't think has gotten much attention.

Other than the demographic assumption, Social Security also seems to be premised on the assumption that successive generations will continue to earn more than their predecessors. This is evident in the fact that benefits are tied to the beneficiary's earnings. While that certainly satisfies our sense of fairness (people who pay more should get more "back"), it actually makes little fiscal sense because the taxes paid by the beneficiaries when they were working have nothing to do with the revenue used to pay the benefits - that money has already been spent on earlier retirees.

If the succeeding generation earns less than the current beneficiaries did, that will further decouple the amount of benefits paid from the amount of revenue coming in.