The Current State of the Social Security Trust Funds

By on June 23, 2016 in Retirement with 50 Comments

Image of Social Security card with 2 dice on top of it

The Social Security and Medicare Trustees released their annual reports on the programs’ financial health yesterday.

At a high level, the report continues the trend of the recent past in which the size of the problem continued to grow over the year while the day on which the consequences should arrive remained about the same.

For Social Security, the trustees predicted the program’s combined trust funds should provide a sufficient buffer to pay scheduled benefits for both retirement and disability until 2034. Once the cash reserves are gone, the administration will only have enough revenue to pay roughly 75 percent of scheduled benefits.

The report does not say that the Trust Fund will last until 2034.  In a normal economy we can expect the system to pay full benefits for another 18 years, give or take 5 years. The report says that the system’s ability to pay scheduled benefits into 2034 is about a coin flip.

Social Security continues to struggle against the cost of time. The unfunded liabilities over the coming 75 years grew by $700 billion to $11.4 trillion. The short message is the longer we do nothing, the greater the cost to stabilize the system will be.

Most of the increase in the 75 year financing gap was attributable to revising the valuation date from 2015 to 2016. First, the figures are expressed in present values which increase as we get closer to insolvency. Second, the passage of time means that the window of solvency changes by a year. This year, the definition of solvency replaces 2015, a year with a surplus, with 2090, a year with a large projected deficit. This dynamic is not predicted to change.

The cost of time over 2015 was offset largely by financial improvement due to new data and improved projection methods. Unfortunately, the difference between these adjustments is the cost of time occurs every year where was the improvements are a one-time adjustment.

The Bipartisan Budget Act of 2015 increased the portion of payroll taxes that the Disability system receives.  It paid for those changes with benefit reductions on married couples.  It seems to be a wash over the next 10 years.

As a result, the remedies required to pay scheduled benefits over the next 75 years remained largely the same.  We can impose an immediate and permanent increase in the payroll tax to 14.98.  Or, we can reduce benefits by 16 percent immediately.

The infinite shortfall incorporates the financing cost of the program rose substantially, more than $6 trillion. This measure basically means that our grandchildren who pay our benefits will collect benefits themselves. The figure should dispel the notion that the finances with Social Security are a transitional problem caused by is the number of Baby Boomers passing through their retirement years.

Unfortunately, the report does not provide much clarity for voters in the coming Presidential election cycle.  Some will to tell us that the data means that Social Security is inexpensive, and needs expansion. Others will say that the numbers justify immediate reform. The numbers in this year’s report do not change that argument.

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

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About the Author

Brenton Smith (A.K.A. Joe The Economist) is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.

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