Social Insecurity

By on April 24, 2012 in Current Events with 140 Comments

The Social Security trust fund is running out of money.

That is from the Social Security Board of Trustees which has released its annual report on the financial health of the Social Security Trust Funds. The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2033, three years sooner than projected last year. The DI Trust Fund will be exhausted in 2016, two years earlier than last year’s estimate.  

The Social Security trust-fund balances are essentially the difference between the taxes that have been paid into the programs and the total number of benefits that have been paid out over a number of years. 

According to the Social Security Board, by 2033 there will be sufficient non-interest income coming in to pay about 75 percent of scheduled benefits. 

Last year, the trustees warned the funds would run out of money in 2036. Benefits would automatically be cut roughly 25% if the trust funds were exhausted. Monthly Social Security benefits averaged $1,125 per recipient in March, according to the federal government’s data. 

Why will Social Security become insolvent three years earlier than was projected in last years report?

The main reason can be attributed to politics. Elected officials seeking favorable ratings during an election year have cut payments to the Social Security program. According to retirement expert (and FedSmith author) John Grobe, the reason for the new projection is “Because it has been underfunded for the last year and a third. The employee contribution to Social Security has been 4.2% rather than 6.2% since January 1, 2011 and will continue to be at that level until December 31, 2012 (unless Congress extends the payroll tax reduction for another year).”  (See his article What Will Happen to Social Security?)

The reality is that there isn’t any actual cash residing in the “trust fund” to pay Social Security benefits. According to author Allen W. Smith: “For the past 25 years, the government has led the public to believe that the surplus Social Security money was actually being invested in government bonds, as it was supposed to be, when, in actuality, the money was spent as general revenue and was, therefore, not invested in anything.” 

But, while the government has borrowed from the Social Security trust fund to pay for other operating expenses and pays interest to the program benefits are still paid in full as long as the fund balances represent a surplus. In other words, the federal government is running a massive deficit each year which now exceeds $15 trillion dollars. To pay Social Security benefits, the government has to allocate new money to pay the benefits. The only ways that the government can pay back the money from the Social Security Trust Fund are raising taxes, decreasing other spending, or borrowing the money.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters onĀ federal human resources.

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