Social Security trust funds projected to run dry by 2034

The recent Social Security trustees report calls for congressional action to keep the program solvent

Social Security trust funds projected to run dry by 2034

Jon VoglerTime to read: 2 min

On June 5, the Social Security Board of Trustees released its annual report on the long-term financial stability of the Social Security trust funds. The report found that the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASDI) are projected to become depleted in 2034 (the same finding as last year’s report), with 79% payable at that time (slightly higher than last year’s projected 77% figure).

Looking at each part in more detail, the report states that the Old-Age and Survivors Insurance trust fund is projected to become depleted in late 2034 (compared to last year’s estimate of early 2035), with funding for 77% of benefits payable at that time. The Disability Insurance trust fund is expected to become depleted in 2032 (extended from last year’s estimate of 2028), with 96% of benefits still payable.

For the first time since 1982, the total annual cost of the OASDI program is projected to exceed total annual income from taxes and investment interest in 2018, a trend expected to continue throughout the 75-year projection period. As a result, asset reserves are expected to decline during 2018. The cost of Social Security has exceeded its non-interest income since 2010.

The call for congressional funding reform

The trustees recommended in the report 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. 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.”

According to the report, 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% of income), or a permanent 17% reduction in benefits would have to be applied (or some combination of both approaches).

This assumes, though, that Congress acts immediately. If lawmakers wait until the trust fund is exhausted in 2034 to enact funding reforms, future solvency would require a nearly 4% increase in payroll taxes (to 16.27% of earnings), a 23% reduction in scheduled benefits or some combination of the two.

We have seen this scenario before. In 1983, Congress passed bipartisan legislation raising payroll taxes and phasing in extended retirement ages. The time appears ripe for Congress to act again to preserve solvency of the program for another generation. As Nancy Berryhill, Acting Commissioner of Social Security, explained, “The fact remains that Congress can keep Social Security strong by taking action to ensure the future of the program.”

Other key takeaways from the report

The Social Security trustees report also included some interesting data on total expenditures, benefits and administrative expenses.

  • The asset reserves of the combined trust funds increased by $44 billion in 2017 to a total of $2.89 trillion.
  • Total income, including interest, to the combined OASDI trust funds amounted to $997 billion in 2017 ($874 billion from net payroll tax contributions, $38 billion from taxation of benefits and $85 billion in interest).
  • Total expenditures from the combined OASDI trust funds amounted to more than $952 billion in 2017.
  • Social Security paid benefits of more than $941 billion in 2017. There were about 62 million beneficiaries at the end of the calendar year.
  • During 2017, an estimated 174 million people had earnings covered by Social Security and paid payroll taxes.
  • The cost of $6.5 billion to administer the Social Security program in 2017 “…   was a very low 0.7% of total expenditures.”

Sources:
BenefitsPRO, “Social Security trust fund to run out of cash by 2034,” Nick Thornton, June 6, 2018

PlanSponsor, “Social Security trustees warn of impending depletion without Congressional action,” John Manganaro, June 7, 2018

InvestmentNews, “2034 is a pivotal year for Social Security,” Mary Beth Franklin, June 7, 2018

Horsesmouth, “SSA releases 2018 annual trustees report,” Elaine Floyd, June 7, 2018

Important information

Blog header image: Aron Brand/Shutterstock.com

 

Jon Vogler
Senior Analyst
Retirement Research, Invesco Consulting

Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.

Prior to joining Invesco in 2008, Mr. Vogler spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.

Mr. Vogler earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He earned a BA degree in history from Rutgers, The State University of New Jersey.

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