Whenever you have a situation where program costs exceed the current tax income the Social Security trust fund reserves are there to pay Social Security benefits to millions of retirees. At their 73rd annual Board of Trustees report it was shown that the trust fund finances are largely unchanged from last year. To most people that information means absolutely nothing as the average person has really no idea how Social Security really works. With that in mind, and with most consumers a little bit jumpy about the current mess in Washington, we put together a short blog about four vital things that you need to know about Social Security’s trust funds and how they affect you. Enjoy.
First and foremost, the trust fund is still growing. It was announced during the Board of Trustees report that old-age and survivors insurance and disability insurance trust funds are growing strong and over the next several years will reach almost $3 trillion. After that however (and beginning around 2021) the costs of the program are expected to exceed the tax income and, because of this, the reserves are expected to take a moderate but ongoing decline.
Secondly, there is a projected deficit coming. It is also thought that by 2033 the OASDI trust funds will be practically exhausted. Interestingly, this is the same year that was forecasted in 2012. While these projections are virtually unchanged from last year, the projections for Medicare have improved modestly and the old-age and survivors insurance fund is now projected to last until at least 2035. The disability insurance trust fund however is expected to be completely depleted by 2016.
Many people are under the false assumption that benefit payments will stop if funds are depleted but this is inaccurate. If the funds are exhausted, tax revenue that continues to come in and will be used to pay out whatever the current benefits are and, at least by what Social Security trustees have said, three quarters of all benefits would still be payable to consumers even after depletion of the funds. In fact, what the trustees projected is that there should be enough tax revenue to be able to cover 70% of all scheduled benefit payments until at least 2033.
While it is a long shot (we are talking about Washington, DC after all) it is possible that Congress could an act sweeping changes that would somehow ensure the long-term fiscal health of the entire program. A payroll tax increase of approximately 1.33% for both employees and employers, for example, would bring the program back to solvency for approximately the next 75 years. A benefit cut of approximately 17% for current and future beneficiaries could also be used to correct the problem, as well as a 20% in a fit reduction for anyone who becomes eligible for benefits after 2013.
Of course, any tax increases or benefit cuts will only get larger the longer that Washington puts off implementing them. The fact is, most experts agree that the window of opportunity to deal with Social Security’s problems realistically is going to end sometime in the next 10 to 15 years. Hopefully the bureaucrats in Washington will get on the stick and get this problem sorted out well before then.