The Social Security Trustees issued their annual report on the status of the Social Security trust funds on Monday. While many focus on the fact that Social Security faces a financial shortfall over the next 75 years, it’s both expected and manageable. Here are four big takeaways from the latest report:
1. Social Security can continue to pay all promised benefits for the next two decades. As was the case in last year’s report, the Trustees continue to estimate that Social Security will be able to pay all scheduled retirement, disability, and survivorship benefits through 2033. Social Security has two trust funds: one for the retirement and survivorship benefit programs, and one for the much smaller Disability Insurance (DI) program (although experts generally consider the two funds together due to the interrelated nature of Social Security’s programs). Individually, the Old Age and Survivors Insurance (OASI) trust fund is projected to deplete its reserves in 2035, and the DI trust fund will do so in 2016. After 2033, the Trustees project that Social Security income from payroll taxes will be sufficient to cover 77 percent of promised benefits after 2033, unless policymakers implement changes before then.
2. Social Security’s shortfall is modest. The Trustees project that the entire Social Security shortfall for the next 75 years will be about 1 percent of GDP, or 2.88 percent of taxable payroll. The bulk of this shortfall, 2.55 percent of payroll or 88.5 percent of the entire shortfall, is attributed to OASI. The Trustees have long projected both the OASI and DI shortfalls. While an aging population is frequently discussed as the driving factor, recent analysis by Monique Morrissey at the Economic Policy Institute finds that as much as half of the shortfall is attributable to rising inequality and wage growth that has lagged behind gains in productivity.
3. The fact that action will soon be needed to address Disability Insurance’s finances has long been expected. As with last year’s report, this year the Trustees continue to project that the DI trust fund will be exhausted in 2016 — something that has been expected for nearly 20 years. The last round of major changes to Social Security occurred in 1983, and included a deep cut in the program’s share of the payroll tax, which in turn imposed a long-term financial loss on DI. Action in 1994 only partially offset the loss, and in 1995, the Trustees accurately predicted that action would be needed in 2016. Also long expected was the growth in the DI program, which is chiefly due to well understood demographic and labor market shifts such as the Baby Boomers aging into their high-disability years (their 50s and 60s); women reaching parity with men in labor force participation, so they have sufficient work histories to be insured in case of disability; population growth; and the increase in the Social Security retirement age, which is causing DI beneficiaries to continue receiving DI for longer before switching over to retirement benefits. As the Boomers age into retirement, DI’s growth has leveled off and is now at its lowest level in 25 years.
4. A routine step would ensure that Social Security can pay all benefits in full through 2033. Rebalancing — an adjustment in the share of payroll taxes allocated to each of the trust funds — has occurred in a bipartisan manner 11 times in the program’s history to account for demographic shifts or other changes. About half the time funds have been reallocated toward OASI, and about half the time toward DI. The hypothetical reallocation plan outlined by Social Security’s Chief Actuary would modestly and temporarily adjust the share of payroll taxes allocated to each fund and would prevent DI’s reserve depletion while keeping the combined trust funds on their current course of remaining solvent for the next two decades.
Americans value Social Security, want to see it strengthened, and are willing to pay for it. Polling consistently shows that large majorities of Americans across all generations, income levels, and political affiliations strongly support Social Security and oppose benefit cuts. (In fact, polling conducted earlier this year by Pew found that it was about the only thing Americans can agree on.) This is something well worth keeping in mind as policymakers debate the options for closing Social Security’s shortfall.