Social Security’s New Day of Reckoning

The author says that the “day of reckoning” for Social Security is likely to come sooner than previously thought.

On April 22nd, the Social Security Administration issued their 2020 Trustees’ Report.

Though the economy was in the grips of the coronavirus spawned depression, the Trustees chose to whistle past the graveyard and claim that the OASDI fund would become insolvent in 2034; the same date given by the 2019 report.

To be fair, the Trustees included some weasel words that hedged their bets. Andrew Saul, Social Security’s Commissioner said:

“The projections in this year’s report do not reflect the potential effects of the COVID-19 pandemic on the Social Security program. Given the uncertainty associated with these impacts, the Trustees believe it is not possible to adjust estimates accurately at this time. The duration and severity of the pandemic will affect the estimates presented in this year’s report and the financial status of the program, particularly in the short term.”

The day of reckoning for Social Security will likely appear sooner than anyone expected just a few short months ago. Almost immediately after Social Security issued the report, the Boston College Center for Retirement Research said insolvency would come in 2032. More recently, the Bipartisan Policy Center opined that 2030 was more likely.

Why the change?

First, less payroll taxes are being collected due to increased unemployment. That’s 12.4% of payroll (half employee and half employer) that is not being collected. 

Second, the Trump Administration is proposing a “payroll tax holiday”. It is proposed that the Social Security and Medicare payroll taxes be eliminated for the remainder of 2020, resulting in even less funding for these two programs.

Third, as we saw in the “Great Recession” of 2008-2009, many of those who lost their jobs and who were at least age 62 applied for Social Security at a younger age than they originally planned. Even though they will “break even” if they live to their life expectancy, this puts an additional and immediate strain on Social Security.

Fourth, the Social Security Trust Fund is earning less money. It is invested in Treasury securities and the yield on Treasuries has fallen through the floor.

Should we panic? Maybe.

A recent Politico article quoted the Democratic Chair of the Social Security Subcommittee of the House Ways and Means Committee as saying “There’s going to be a real reckoning. This is going to get people’s attention.”

There is apparently bipartisan agreement on this issue, as the same article quoted the Subcommittee’s ranking Republican as saying “This is a train wreck that’s going to happen and you can see it coming.”

What can happen?

Social Security benefits could be cut; payroll taxes could rise; the retirement age could be increased; or the “tax-cap” could be lifted. Possibly a combination of the above actions could take place.

I think it’s safe to bet that Congresspeople won’t be tripping over each other to act on this problem. The bipartisanship and concern shown in the quotes in the above paragraph is rare in Washington.

What can we do?

We can support candidates who feel the same way we do about the future of Social Security. We can set aside more money for our future in other areas (e.g., IRAs, taxable accounts, etc.).

Let’s not panic yet; but let’s not ignore the problem either. 

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About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.