Social Security Going Broke? Not In Your Lifetime
Every June, the trustees of the Social Security program issue their annual “Social Security Trustees Report” and every year a group of folks masquerading as Chicken Little followers say that the report should be viewed as a modern-day version of the “the sky is falling” tale. Is the Social Security program going to be able to provide for the millions of seniors expecting benefits for many years or is it about to go broke?
According to the 2018 version of the “Trustees Report,” the system will be able to provide 100 % of the promised benefits to all recipients through 2034, when without some tweaking it will be required to cut benefits to about 79% of the promised benefits to all recipients through the remainder of the twenty-first century. This is hardly “going broke,” as many doomsayer headlines have been proclaiming, since the literal translation of “going broke” evokes a picture of complete emptiness. No, the system will still be able to provide a substantial portion of the promised benefit through the remainder of the current century WITHOUT ANY ADJUSTMENT BEING MADE TO THE CURRENT SYSTEM.
This is not the first time that Social Security has required some tweaking to improve the complete solvency of the system. In the early ‘80s, the system’s reserves began to be depleted. Congress tweaked the system at that time by gradually increasing the full retirement age from 65 to 67 and by making other adjustments in the income levels to be taxed. These moves increased the reserve status of the system and, as Congress usually does, pushed providing a permanent solution many years into the future.
Today, faced with a similar decline in the reserves and faced with the potential reduction in the benefits in fifteen years, Congress can be expected to find similar aspects of the system that can be adjusted. Some possibilities that lend themselves to change include removing the maximum income level upon which the tax of 6.2% Social Security is paid ($128,400 in 2018), increasing the tax from 6.2% to a higher number (6.7% ?), and/or increasing the age of full benefit to 68 or 69 (as lifespans continue to increase). Any one or more of these would be sufficient to push the “going broke” scenario far into the future.
There are many who argue, correctly, that Social Security could never “go broke” because of the revenue base that underlies the program itself. Every worker pays into Social Security during his/her working career. Currently, that means 6.2% of the first $128,400. That amount is matched by a corresponding employer contribution. Together that means 12.4% of salary up to $128,400 ($15,921.60) is contributed to the Social Security Trust by each working individual and his/her employer. (Self-employed workers pay the full 12.4% each year i.e. $15,921.60 ). Those whose income exceeds $128,400 still pay only $15,921.60.
Social Security should be viewed as a “revolving door” program, which means that there will always be money coming into the system from those working, while at the same time, there will always be money going out to those who are collecting Social Security benefits. So, as with a revolving door, the money coming into the system will spin around and go out the other side of the door constantly. Since there will always be money coming into the system from those working, there should always be money available to pay to those who are collecting benefits.
Up until 2022, more money is expected to come into the system than flows out. This excess of incoming money has increased the value of the trust for many years. In 2022, though, this excess will cease and the annual benefits being paid out will begin to exceed the annual money flowing in and the trust will begin to diminish. By 2034, it is anticipated that the trust will no longer have trust assets to balance the outflow. That is the where the “going broke” concept has its basis. In reality, there will always be money, but, unless some adjustment is made to increase the amount of money flowing in or decrease the amount of benefits flowing out by 2034, the system will have to cut benefits.
That is where Congress enters the picture. It will have to take some action in the next fifteen years to head off this scenario and restore the Social Security system to a position that eliminates any Chicken Little talk.