“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010…. After 2019, Treasury will redeem trust fund asset reserves…until depletion of combined trust fund reserves in 2033…. Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits….”

                       Social Security and Medicare Trustees Message, July 2014

On July 28 the Social Security and Medicare Trustees released their 2014 report, including a forecast that, absent measures to shore up its finances, the Old Age and Survivors Insurance (OASI) trust fund, which pays Social Security benefits, will run out of money in 2034. And the theoretical combined OASI and disability insurance trust fund (OASDI) will exhaust in 2033.  

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Social Security: Insolvency in 2033?

Tue Aug 5, 2014

“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010…. After 2019, Treasury will redeem trust fund asset reserves…until depletion of combined trust fund reserves in 2033…. Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits….”

                       Social Security and Medicare Trustees Message, July 2014

On July 28 the Social Security and Medicare Trustees released their 2014 report, including a forecast that, absent measures to shore up its finances, the Old Age and Survivors Insurance (OASI) trust fund, which pays Social Security benefits, will run out of money in 2034. And the theoretical combined OASI and disability insurance trust fund (OASDI) will exhaust in 2033.

The report is not relaxing midsummer reading. Two trends are cited for Social Security’s dire finances: (1) costs rising substantially because the number of beneficiaries has shot up as baby boomers retire and collect benefits; and (2) lower birth rates causing slower growth of the labor force and GDP.

In short, the worker-retiree ratio, roughly 9:1 in 1960, is around 3:1 now and headed to 2:1 in 2030 or so. Put another way, there will be two people working and paying payroll taxes for every one person collecting benefits. And almost 20 percent of the U.S. population will be over age 65. Not a promising formula for Social Security solvency.

The report does more than paint a grim financial picture: it exhorts Congress to do something about it—and soon. Say the public trustees:

Unless Social Security’s historical financing structure is to be altered to finance some or all of the program from the Federal government’s General Fund on a permanent basis…legislators must act to eliminate this financing shortfall. This task becomes progressively more difficult, and therefore less assured of success, with each passing year.

Like most public policy issues, it’s easier to describe a problem than to advance a solution, especially one that can win bipartisan support. Thus, while Social Security’s trustees outline the financial challenges and urge action, they don’t propose specific legislative remedies.

Nevertheless, the framework needed to avoid Social Security insolvency and prevent an across-the-board 25% benefit cut is obvious: benefit growth must be slowed and revenues must be increased. But if the battles over the Affordable Care Act, immigration reform and the federal budget are any indication, legislative consensus on the details for this so-called “3rd rail of American politics” could prove elusive.

Part II of this blog will review policy proposals to save Social Security.