Sometime in the next six weeks or so, the Trustees will issue their 2014 report on the status of the Social Security Trust Fund. If the past portends the future, some elements of the press will paint a ‘not to worry’ picture.
For example, in June 2013 the HUFF POST Political Blog said this about the Social Security Trustees Report.
The 2013 Trustees Report shows that Social Security is fully solvent until 2033. After 2033, it faces a moderate long-term shortfall. In 2012, Social Security took in about $54 billion more than it paid out.
Hey, taking in $54 billion sounds pretty good doesn’t it. Not to worry until 2033 when there is moderate shortfall.
But wait; let’s look at what the Trustees actually said:
In the 2013 Annual Report to Congress, the Trustees announced:
🔴 The combined trust fund reserves are still growing and will continue to do so through 2020. Beginning with 2021, the cost of the program is projected to exceed income.
🔴 The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits.
[Does that sound like a moderate short-term shortfall?
🔴The projected actuarial deficit over the 75-year long-range period is 2.72 percent of taxable payroll — 0.05 percentage point larger than in last year’s report.
[To keep Social Security funded to the point where full earned benefits can be paid requires increasing the payroll tax by 2.72% (or taking other actions of equivalent value)]
Other highlights of the Trustees Report include:
🔵Income including interest to the combined OASDI Trust Funds amounted to $840 billion in 2012. ($590 billion in net contributions, $27 billion from taxation of benefits, $109 billion in interest, and $114 billion in reimbursements from the General Fund of the Treasury—almost exclusively resulting from the 2012 payroll tax legislation)
[Now look where the money the Trust took in came from. $109 billion was interest paid by the Treasury on the Social Security bonds. Interest that eventually will be insufficient to pay benefits. And where does the money come from to pay the interest? Your income taxes and or simply adding to the federal debt.]
🔵 Total expenditures from the combined OASDI Trust Funds amounted to $786 billion in 2012.
🔵 Non-interest income fell below program costs in 2010 for the first time since 1983. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.
🔵 The asset reserves of the combined OASDI Trust Funds increased by $54 billion in 2012 to a total of $2.73 trillion.
[Ah, there’s that $54 billion we were looking for]
QUINNSCOMMENTARY 
The larger problem is the shortfall which grew by nearly 3 trillion dollars. Social Security isn’t funded. It is financed. The system collects revenue in the form of payroll taxes in exchange for the promise of future benefits. That isn’t revenue. It is a loan.
LikeLike
Planning on leaving your kids, grandkids, and great grandkids anything in the form of cash when you depart your mortal body? You may be down to your last plugged nickel.
If they haven’t been saving anything for the future, the future for them looks pretty bleak.
Retirement as we knew it is now obsolete, Monies they think they set aside for rainy days, cruises, and rounds of golf may never provide even enough to live on in their twilight years. Those highly touted 401K plans, vested guaranteed pensions, defined benefit plans, mutual fund investments and some token pittance from Social Security are likely to buy a meager supply of groceries, chip away at the high deductible on their ObummerCare, buy some prescription meds, keep their old Prius plugged in, and maybe have something left over to mail the grandkids a birthday card with a $3 forever postage stamp. Travel plans won’t be cruises and globe trotting, just a trip to the doctor’s office if they can get an appointment to see one.
The American Dream. Come One, Come All. Socialism ain’t what it’s cracked up to be. We know marijuana’s now legal in some states. Is this New American Dream just a *pipe dream *where everything goes up in smoke? Crack anyone? Looks like SS may finally be shouting SOS.
LikeLike
You anticipate a rather bleak future and for some (perhaps many) people you may be right, but it doesn’t have to be that way if people were more prudent with their money and life choices. The demise of the traditional defined benefit pension is the biggest mistake employers have made; it will come back to haunt them and the rest of society.
LikeLike
I will again sing my one note tune. If America would raise the retirement age, we would signal to the workers that Uncle Sugar (whether it is their employer or Social Security) isn’t going to kick in at 65. Then people would be faced with reality: either plan to work longer, or save enough to cover your own retirement.
This farce, retire at 65 and get paid to sit at home and play golf for the rest of your life, is doing a huge disservice to future generations. A little more honesty would go a long way, but honesty did not win the presidential elections. 😦
LikeLike
Gradually raising the retirement age, including the early retirement age and modifying the COLA in several ways such as no COLA for first five years of receiving benefits, plus no COLA for anyone retiring with maximum benefit and implementing chained CPI would also send a strong message for personal planning while shoring up SS finances. Of course, to work also requires stopping abuse of disability Social Security.
Richard D Quinn
Blog http://www.quinnscommentary.com Twitter @quinnscomments
>
LikeLike
Statistically, younger workers will not even get their contribution back. Raising the retirement age simply makes Social Security a worse deal – and that assumes that they get paid full benefits. The only way that happens is if they subsequently lower the returns for their children.
The more we reduce the return the greater the risk that we find a generation that simply says no. Raising the retirement age doesn’t fix Social Security it makes it less stable.
LikeLike
But what’s the alternative? Certainly increasing payroll taxes doesn’t make it better.
LikeLike
You are correct. It is a mistake to think that the only solutions are higher taxes and lower benefits. That isn’t fixing Social Security. That is paying for a broken system. Social Security is horribly inefficient. When we look at higher taxes or lower benefits, we are essentially changing the name of the person who pays for the brokenness.
The financial problem in Social Security stems from the first 50 years of retirees who systemically underfunded the system. When we cut benefits, we are saying that our children should cover the bill rather than us. That raises the question, once they get the right to vote will they pay the taxes that we refused to pay.
In all honesty, a benefit cut is essentially a tax increase. Payroll taxes are part tax and part contribution. In theory, it is very difficult to call something a tax that provides the payor future income streams. The payroll tax breaks into two things. A contribution which is the part of the revenue on which the worker gets an economic return and a tax which is the part on which there is no return. The mix of tax and contribution differs from person to person. A high wage work for example pays primarily tax, where as the lower wage worker pays primarily contribution. As you lower benefits, the reality is that you are shifting the mix to less contribution and more tax.
LikeLike