What The Numbers In Social Security Mean To The Voter

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By on June 13, 2018 in Retirement with 0 Comments

Social Security cards interspersed with cash

Last week, the trustees of the Social Security Trust Fund released their annual report with the financial assessments of the nation’s largest expenses. As with every year, the trustees warn lawmakers that the longer we wait, the worse the problem gets. 

Predictably enough, the reviews in the media tend to be mixed (see below for articles). This coverage generally condenses hundreds of pages of information jammed packed with charts and tables into four digits – 2034.

Unfortunately, the digits do not mean the same thing to everyone. To some, 2034 could mean that we have 15 years before we need to make any changes. To others, the date represents a financial Rubicon over which the system goes broke. The truth lies somewhere in between.

The approach that we take to the numbers leaves a lot of room for misunderstandings. For example, it is possible to examine the digits and conclude that the problem is “similar to last year”. In fact, the exhaustion point didn’t change, and the resulting projected discount to future retirees actually fell.

On the other hand, the program created roughly $600 billion in promises which no one expects it to keep.

In English, a deeper look at the numbers suggests that the fuse grew a year shorter, while the size of the bomb grew by more than 5 percent. That is the problem we didn’t have last year. 

There are two points which I have made on these pages in the past.

First, time continues to be the driver of the impending crisis. With the combination of inaction and the passage of time, Social Security created $0.60 in bad promises mostly to current voters for every dollar the program collected in 2017.

Second, the program expects the expenses of the program to exceed the revenue for the first time in 35 years. This is a startling revelation, given that last year this milestone was judged to be five years away.

The latter observation will prove very problematic to the nation because the more that the program relies upon the resources of the Social Security Trust Fund to fill in the gaps in revenue, the more visible the system’s footprint is felt by the economy. Up to now, the bulk of interest has posted to the program as an internal credit that was invisible to the capital markets. Nearly 15 cents of every dollar borrowed by the government was done inside of Social Security with the click of button.

From here on out, however, Social Security will, over the next five years, become a discernible economic event felt at the home of every voter. Money will not post because of a click of button. Hard cash has to be borrowed and paid.

Next year, 80 billion dollars of interest will be entirely visible to the economy. The government will have to borrow this sum from the public in order to pay full benefits of Social Security. That is just interest. Soon enough, the government will have to borrow money in order to repay all of the internal credits that have been posted over the years. By 2023, the system will cost the Treasury more than $250 billion every year completely visible to the economy.

Another way to frame the problem is to look at the cost to the worker. When I arrived in the work force, the cost of Social Security was 10.8 percent of wages. At that price, we were able to take care of retirees and leave a smidgen of revenue for future retirees. In 2010, FICA took 12.4 percent of wages, and left nothing over. In 2018, Social Security will consume all of the FICA revenue and cost the Treasury roughly $100 billion between interest and general fund subsidies.  

Versus last year, the problem that we face today is close to a trillion dollars larger over the next five years. This figure represents money that can’t be used to shore-up Medicare, an entitlement with its own set of financial headaches. It can’t be used to restructure student loans for younger workers, rebuild infrastructure, or invest broadly in the future.

The one thing that is clear is that the consequences of the program that we have wrung hands over for the past decade moved five years closer to the home of every voter.

For more detail, these articles have sound analyses:

AP, Orlando Sentinel OpEd, Charles Blahous, and of course FedSmith.com

© 2018 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) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.

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