Social Security’s asset reserves in the Old-Age and Survivors Insurance program are projected to be exhausted by 2034, one year sooner than was projected last year, according to the Social Security Administration’s 2018 Trustee report.
Absent Congressional action, retirees will see a 23 percent reduction in scheduled benefits then, which will be paid strictly from payroll tax revenue.
“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them,” the report says. Social Security’s Trustees include the Secretaries of Treasury, Labor, and Health and Human Services, and the commissioner of the Social Security Administration.
“Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits and could preserve more trust fund reserves to help finance future benefits,” the trustees write.
In 2017, 51 million retirees and their dependents received benefits through the OASI program, and another 10 million Americans received benefits through the Disability Insurance program.
Payroll taxes were collected on about 174 million workers last year. The SSA paid out $952 billion in benefits last year, and took in $911 billion in taxes, and another $85 billion in interest earnings.
Total reserves, for both the OASI and DI insurance programs, were about $2.89 trillion at the end of 2017, a $44 billion increase from the beginning of 2017.
But that sum is projected to begin a downward spiral, beginning this year. In 2018, Social Security’s total costs will be greater than income from taxes and investments for the first time since 1982. In 1983, Congress passed bipartisan legislation raising payroll taxes and phasing in extended retirement ages.
Social Security’s costs have exceeded revenue from payroll taxes since 2010, but interest income was able to make up the difference.
But this year the program will run a $2 billion deficit, even when accounting for interest income on invested assets. Deficits are expected to continue, the report says.
Social Security’s assets are now nearly 300 percent greater than its costs. But by 2027, assets will dwindle to 137 percent of costs.
In order for Social Security to remain solvent over the Trustees’ 75-year projection period, payroll taxes would have to be increased 2.78 percentage points, to 15.18 percent of income, or a permanent 17 percent reduction in benefits would have to be applied, or some combination of both approaches, the report says.
But that is if Congress acted immediately. If lawmakers continue to kick the can down the road, and wait until the trust fund is exhausted in 2034 to enact funding reforms, future solvency would require a nearly 4 percent increase in payroll taxes, to 16.27 percent of earnings, a 23 percent reduction in scheduled benefits, or some combination of the two.
“If substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations,” write the Trustees. “Much larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2034.”
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