Social Security cardsImbalance to continue until the SSA's Old-Age and SurvivorsInsurance fund is depleted in 2034, at which time scheduledbenefits to retirees would be cut 23 percent. (Photo:Shutterstock)

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Social Security is about to pay out more money than it earns forthe first time in decades, according to the 2019 OASDI TrusteesReport, released today.

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By 2020, obligations to retirees and disabled Americans willcost more than Social Security's revenue from payroll taxes,taxes on benefits, and interest earned on investments.

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That imbalance is expected to continue until the SSA's maintrust fund—the Old-Age and Survivors Insurance fund—is depleted in2034, at which time scheduled benefits would be cut 23 percent toretirees. This year's projection is inline with last year'sTrustees Report.

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Social Security's other trust fund—the muchsmaller Disability Insurance Fund—is in much better shape thanpreviously projected. The DI Fund is now projected to remainsolvent to 2052, a 20-year improvement over last year's projection,owed to the continued decline of disability applications since theend of the Great Recession.

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Together, OASI and DI funds will be depleted in 2035, a one-yearimprovement over last year's projection, the report says.

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But that headline is potentially misleading. The report notesthat under current law, the cuts in scheduled benefits beginseparately for each program: 2034 for the OASI program, and 2052for the DI program.

Last time SS was revenue negative, Congress moved to reformfunding

When Social Security begins drawing down its $2.9 trillion inreserves next year, it will be the first time the agency will payout more than it takes in since 1982.

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That underscored the imminent funding issues Social Security wasthen facing, and spurred amendments that were signed into law in1983 that included the taxation of some Social Security benefits,an increase in the retirement age, and coverage of federalemployees.

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Back then, control of Congress was divided as it istoday—Democrats controlled the House of Representatives,Republicans controlled the Senate. The amendments were passed withbipartisan support and signed in to law by President Regan.

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While Democrats and Republicans have introduced bills to reformSocial Security in recent Congressional sessions, and the HouseWays and Means Committee held a productive hearing on reform at the outset of the 116thCongress, the parties are at loggerheads over a path tosolvency.

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Democratic proposals include a phased-in increase of the payrolltax for all Americans, and an expansion of benefits for the mostvulnerable Americans. Republican proposals favor raising theretirement age.

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As it has in previous years, the Trustees Report urges immediateattention from lawmakers, and warns against the costs of kickingthe can down the road.

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"The Trustees recommend that lawmakers address the projectedtrust fund shortfalls in a timely way in order to phase innecessary changes gradually and give workers and beneficiaries timeto adjust to them," this year's report says. "Implementing changessooner rather than later would allow more generations to share inthe needed revenue increases or reductions in scheduledbenefits."

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Social Security's 75-year actuarial deficit is $13.9 trillion.In order for its two funds to remain solvent over that period,payroll taxes would have to be increased by 2.7 percent to 15.1percent, or benefits would have to be reduced by 17 percent for allcurrent and future beneficiaries, or a combination of each approachcould be applied, the report says.

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"If actions are deferred for several years, the changesnecessary to maintain Social Security solvency become concentratedon fewer years and fewer generations," the Trustees say.

Inside the numbers

An estimated 176 million people had earnings covered by payrolland Social Security taxes in 2018. About 52.7 million peoplereceived $845 billion in retirement benefits, and 10.2 millionreceived $143.7 billion in disability payments. Social Security isexpected to pay benefits to about 64 million beneficiaries in2019.

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The OASI program took in $715.9 billion in payroll taxes, $34.5billion in taxes on Social Security benefits, and $80.7 billion ininterest payments on invested reserves.

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The DI program took in $169.2 billion in payroll taxes,accounting for most of its $25.5 billion surplus in 2018.

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Both programs are facing considerable demographic headwinds withthe retirement of baby boomers. There were about 2.8 workers forevery Social Security beneficiary in 2018.

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That ratio was 3.2 to 3.4 between 1974 and 2008. It is expectedto continue to decline through 2035, when it will be 2.2 workersper beneficiary, as the baby boomer generation becomes fullyretired.

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READ MORE:

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Why Social Security's 2019 COLA will be 2.8percent

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Alicia Munnell: The Social Security fix nobodywants

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Ward off clients' retirement crisis with SocialSecurity talk

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.