There are a few bright spots for the nation’s retirement security system, but concerns remain about the long-term outlook for Social Security. The annual report of the Social Security Board of Trustees reveals that the combined assets of the Old Age and Survivors Insurance and Disability Insurance (OASI and DI) trust funds are projected to become depleted in 2035, one year later than projected last year. If Congress does not act before then to shore up the program, payroll taxes would only be sufficient to pay 80% of scheduled benefits at that time.
Trust fund assets increased unexpectedly in 2018
The total annual cost of the Social Security program was expected to exceed total income last year for the first time since 1982, but surprisingly, that didn’t happen. Asset reserves in the combined OASI and DI Trust Funds increased by $3 billion in 2018 to $2.895 trillion. On its own, the OASI Trust Fund, which pays retirement and survivor benefits, is projected to become depleted in 2034 (unchanged from last year), with 77% of benefits payable at that time. The DI Trust Fund is estimated to become depleted in 2052 – 20 years later than last year’s estimate of 2032, with 91% of benefits payable. According to Nancy Berryhill, acting commissioner of Social Security, this large improvement in the DI Fund is mainly due to continuing favorable trends in the disability program, with new applications and the number of disabled-worker beneficiaries receiving payments both declining in recent years.
Long-term challenges remain unaddressed
Unfortunately, the Social Security program still has long-term financing problems. The annual cost of the program is now projected to exceed annual income in 2020 and remain higher throughout the 75-year projected period. As a result, total asset reserves are expected to decline during 2020. Social Security costs have exceeded its non-interest income since 2010.
“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,” said Ms. Berryhill in a statement accompanying the report’s release.
In response to the Trustees report, Rep. Richard Neal, D-MA, the Chairman of the House Ways and Means Committee (which has jurisdiction over Social Security issues) said that he intends to find solutions that provide more Americans with economic security. “As part of that mission, I am committed not only to protecting Social Security and Medicare, but also to enhancing these programs so that they better serve recipients,” he stated.
Other highlights of the report include:
- Total income, including interest, to the combined OASI and DI Trust Funds was just over $1 trillion in 2018 ($885 billion from net payroll tax contributions, $35 billion from taxation of benefits and $83 billion in interest). Total expenditures from the combined funds amounted to nearly $1 trillion in 2018.
- In 2018, Social Security paid about $989 billion in benefits to 63 million people. During that same period, 176 million people had earnings covered by Social Security and paid payroll taxes.
- The cost of $6.7 billion to administer the Social Security program in 2018 was 0.7% of total expenditures. The combined trust fund asset reserves earned 2.9% of interest in 2018.
- The projected actuarial deficit over the 75-year long range period is 2.78% of taxable payroll, down from the 2.84% projected last year. This means that bringing the Social Security program into financial balance for the next 75 years would require increasing payroll taxes immediately by 2.78%, or 1.39% each for both workers and employers.
Adjustments to improve the long-term outlook for the Social Security program could generally be addressed by either increasing taxes or reducing benefits, or some combination of both.
We’ll keep you posted on further developments in this area.
Employee Benefit News, “Social Security: Bright spots and trouble on the horizon,” Andrew Welsch, April 22, 2019
InvestmentNews, “Social Security funding outlook improves slightly,” Mary Beth Franklin, April 22, 2019
NAPA Net, “Social Security sees some improvement, but headwinds remain,” Ted Godbout, April 22, 2019
PlanSponsor, “Social Security depletion date unchanged,” Lee Barney, April 22, 2019
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