- The report is 9 months out of date, as such it is already $500B out of date
- Insolvency in 2034 means that a typical 74 year-old expects to outlive the system’s ability to pay scheduled benefits
- The unfunded obligations of the program set a record, increasing $3T in one year
On August 31, 2020, the Trustees for the Social Security Trust Funds released their financial assessment of the program’s long-term financial prospects.
The size of the bomb grew, and the length of the fuse shortened.
Here is the Reader’s Digest version of the 2021 Trustees Report: Social Security won’t be able to pay full benefits by 2034, a year earlier than expected due to the pandemic. Despite the importance of the program, that caption provides sufficient assurance to most voters that program has weathered the COVID pandemic. (See CNN’s version)
What the topsoil means
The report suggests that even in a robust economy, about half of those turning 74 today will live long enough to experience a reduction of benefits of 24 percent. That reduction is a first year cut that grows with time.
While these prospects may seem unpleasant, they are not guarantees. To illustrate, the system’s ability to pay $0.76 on the dollar assumes that seniors will continue to spend the same amount whether they get a full checks or not. That may not prove to be a good assumption. So if seniors respond to less income with less spending, $0.76 goes out the window.
What deserves your attention
The key new aspect of the report that has eluded coverage is the timeliness of the information. It is 5 months past due, and follows a report that was built on an economy that doesn’t exist. Social Security has essentially been on auto-pilot for the last 21 months.
- The delay is important because the passage of time is basically Kryptonite to Social Security. In 2020, changing the valuation date created $700B in unfunded liabilities. That means that the information in the 2021 Trustees Report is already nearly $500B out of date.
- The gap between what the system promises and what the system expects to collect rose to $19.8T. That is a blow-out record – and Google can’t find it.
- The economy has moved on from this report. It is assumed that inflation is 3.06%, where as the latest data suggests the COLA for next year will be 6%.
Policy experts weigh in on the decline in beneficiaries
I attended the Committee’s for a Responsible Federal Budget’s overview of the Trustees Report, and received more questions than answers. The panel observed the number of checks paid by the program is rising more slowly than it has in the past. The experts on the panel surmised that the issue might be the closure of the field offices which made claiming benefits too difficult on seniors. Or, the number of deaths attributed to COVID might have put a downward pressure on the numbers.
Growth is visibly down, particularly in 2021. The drop is not entirely related to COVID if the CDC projections are accurate. At this point, the program is seeing expenses come in lower than expected but we don’t know why.
You read it on FedSmith first
While most Americans depend upon their benefit checks, fewer understand the mechanic behind the curtain, so a phrase like the “average wage-index” tends to be lost in the jargon of wonk-speak. Actually, it should be called the “driver of pretty much everything Social Security index.” Specifically, it determines the size of checks going out and the amount of taxes workers might face next year.
According to the latest Trustees’ report, the past year wasn’t much different for the average worker than any other year in their lifetime. In general, Social Security had roughly the same number of workers, collecting higher wages, working roughly the same number of hours, and receiving the standard bonus. The pandemic was a yawn-o.
It may be true. I have my doubts. The driver of the everything-Social-Security index is wages above the cap. While these workers make up 6% of the work force they account for 30% of the AWI. When the CEO gives himself a raise, he is quietly passing along a little bump to the senior getting a check. (Feel free to ask for an explanation in the comments section).
If wages are really where they were in the past, why do we need an extension of pandemic relief checks, and a moratorium on rental evictions? (Not questioning the policy, but wondering why they are needed if everyone has a job and getting raises).
The longer we wait the harder it gets
Every expert on the issue agrees upon one thing: every year that passes makes finding common ground more difficult. Congress does not have 12 years to think about this issue, and they need to acknowledge that talking about Social Security is not really a solution.