Will Social Security Still Exist When I Retire?

For almost a century, Social Security has been a central piece of America’s social safety net. But today, there are questions on everyone’s minds about the continued viability of this protective platform. People who rely on the benefit to help make ends meet are especially worried.

A sixty-year-old man who is on Social Security Disability Insurance (SSDI) recently shared his anxiety about that program’s future. “This is the only income I have,” he said. “Should I be worried about my future and having my SSDI go away? Do I have to worry about living on the street?”

Such concerns are legitimate. A 2017 report from the Social Security Board of Trustees’ did little to alleviate those fears. That analysis found that 2022 will be the first year in four decades that Social Security will pay out more than it collects in revenue. This shortfall is expected to continue for the coming years.

As background, the money for all four categories of Social Security benefits (retirement, disability, dependents and survivors benefits) is held in a fund called the Old-Age, Survivors, and Disability Insurance (OASDI) Trust. For many years, the OASDI Trust has generated more income than it has disbursed through the collection of taxes and interest on its reserves.

The asset reserves, which are invested in special-issue bonds, have so far grown to nearly $2.9 trillion. But, a siphoning of the reserves is coming in the near future.

Here’s a breakdown of the shortfall forecast for the OASDI from the Trustees’ report:

  • 2022: $18.2 billion decrease
  • 2023: $46.4 billion decrease
  • 2024: $75.7 billion decrease
  • 2025: $108.9 billion decrease
  • 2026: $143.8 billion decrease

When you add these numbers, you see that the OASDI Trust’s reserves stand to be reduced by almost $400 billion in just five years. The trust fund ratio (meaning the percentage of asset reserves in relation to scheduled benefits) will tumble accordingly, from 298% in 2017 to only 165% in 2026.

And the worst news: The Trustees’ report also predicted that the reserve will dry up by 2034.

What’s happening? The answer to this question is multifaceted. Distilled down, there are three factors affecting the differential of what the OASDI Trust is bringing in and what it’s paying out.

Baby Boomers are retiring in droves, which drives down the worker-to-Social-Security-beneficiary ratio. Americans are also living longer than when Social Security was enacted in 1935 – an average of fifteen to sixteen years longer. The Federal Reserve has also played a role by keeping interest rates at record lows for seven years, which many argue stunted the growth of the reserves’ special-interest bonds.

No matter the root causes, here we are.

Now the Social Security Board of Trustees has issued its 2018 report. What’s included in this 270-page forecast? It’s the same story, really, with some more nuanced information.

Here are some of the report’s key points:

  • Social Security will run permanent deficits, meaning it will spend more than it raises in tax revenues and interest on those revenues.
  • The program faces long-term imbalances. These imbalances loosely translate into a need to increase payroll taxes by 22% to ensure solvency for the next 75 years.  Alternatively, benefits will have to be reduced by 26% across the board.
  • Social Security benefits will be insolvent by 2034 (with SSDI benefits being projected to be insolvent by 2032), and at the time of insolvency, all beneficiaries will be met with a potential 21% benefit cut.

We can all agree and acknowledge that this is a systemic problem better addressed now, versus 16 years from now. While I don’t know what the fallout from this report and its projections will be, I do know that policymakers have multiple options for addressing the issue. Some are more attractive than others, but in any case, they are a start to heading off the dire situation predicted in the Trustees’ 2018 report.

1. We could begin by raising payroll taxes on current employees, which today stands at 6.2% per worker, which employers match for a total of 12.4% combined.

2. The payroll cap – which is the amount above which earnings are not subject to Social Security taxes, currently $128,400 – could be raised or eliminated.

3. Our current Full Retirement Age (FRA) for those born in or after 1960 of 67-years-old could be raised.

4. We could begin “Longevity Indexing,” or the reducing of future benefits to smaller monthly payments when the average US life expectancy increases.

5. Benefits for higher earners could be reduced.

6. There could be the implementation of a means-test for Social Security benefits.

7. The Cost of Living Adjustment (COLA) calculation could be changed from the consumer price index to reflect how consumers change their buying habits when prices change (called a “chained consumer price index”) or the spending patterns of elderly Americans with a heightened focus on healthcare (called an “elderly index”).

Of course, there are pros and cons to each item above, and the issue will neither be resolved overnight nor by one singular approach. It is, after all, a layered issue with many moving parts. But, waiting to act compounds the problem.

Just before the enactment of the Social Security program, President Roosevelt said, “We pledge ourselves to work unceasingly in state and nation for… The protection of home life against the hazards of sickness, irregular employment, and old age through the adoption of a system of social insurance adapted to American use.”

We would do well to honor Roosevelt’s pledge today, no matter the changed circumstances from his time, by doing what we can today to safeguard this vital program.

The current general consensus of the Social Security Board of Trustees is that with informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect current and future generations.

Check Out: Born Before 1954? Consider the “Spousal Save” To Maximize Your Social Security Benefits

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