Last month, Social Security, America’s best social program, was celebrated 85th anniversary of entry into law. Today, it is a program responsible for providing monthly benefits to more than 64 million people, of which more than 7 in 10 are retired workers. Of these retirees, 15.3 million As a result of their social security income, they are being dragged above the federal poverty line.
In other words, social security is a big issue when it comes to the financial well-being of retired workers in our country.
Unfortunately, social security also works in smoke.
The best social program in our country is facing a funding shortfall of about $ 17 trillion
Over the past 35 years, the Social Security Board of Trustees’ analysis, which examines the long-term outlook for the program (75 years), estimates that revenue collection is not sufficient to meet the quota. According to a 2020 report, Social Security will reduce its funding liability by $ 16.8 trillion, and the $ 2.9 trillion asset reserve (i.e., the total cash surplus created from the beginning) is expected to be depleted by 2035.
Clearly, the economic problems of social security Does not threaten the survival of the program. It currently has three sources of funding, two of which are recurring: 12.4% of income earned, including payroll tax and benefits tax. Even if the program’s asset reserves are completely depleted, a lot of money will continue to flow into the program to be distributed to eligible beneficiaries.
However, the Social Security asset reserve going to $ 0 has no adverse effects. More specifically, the current payout schedule, including the cost of living adjustment, will not be sustainable. Once the program’s asset reserves dry up in 2035, the Board of Trustees estimates it Benefits are cut by up to 24% The Aging-Survival Insurance (OASI) Trust may need to sustain liquidity for the long term. This means a huge cut in the monthly benefits for retired workers and survivors of dead workers.
Social security calculations may come sooner than expected today
The chances of this happening for 15 years from now are alarming. But what if the trustees’ figures are really optimistic?
The Congress Budget Office (CBO) released one last week Nine-page analysis The outlook for all major federal trust funds (mainly the 10-year form between 2020 and 2030) was examined. The CBO expects social security to be worse than the picture drawn by the trustees.
Like trustees, the CBO expects to spend more than 2021 on social security revenue collection. But contrary to the trustees’ report, the CBO’s forecast indicates a rapid collapse of the program’s $ 2.9 trillion asset reserve fund. In 2021 alone, the Integrated OASI, Disability Insurance (DI) Trust, known as “OASDI” for simplicity, has decided to spend $ 120 billion more than it collects. By 2030, this annual OASDI inflow will reach $ 384 billion.
According to the CBO, the DI Trust will fully repay its assets in the 2026 calendar year, while the OASI Trust will reduce its asset reserves in the 2031 calendar year. In other words, we may be only 11 years away from the steep benefit for retirees over 15 years as predicted by the latest trustees report.
Why, exactly, is social security in jeopardy?
The question that constantly arises when discussing the worst view of social security is how the program got into this mess. Baby boomers are often accused of leaving the workplace or legislators dipping their hands in a cookie bowl. The previous idea is far from the only problem with social security, and the second is a myth that never dies.
The economic woes of social security can often be traced directly to a number of macroeconomic trends that go unnoticed. That would be a good example Rising income inequality. The primary goal of Social Security is to provide a financial base for low- to middle-income Americans at the time of retirement, yet the rich will benefit the most from this program. Because there are no financial constraints on those who need to do well when receiving preventive care or prescription drugs, they are more likely than low-income workers. This allows the rich to accumulate a larger benefit check over a longer period of time.
Historically low birth rate That is another problem. The Social Security Program calculates a fixed number of births each year to maintain a consistent worker-beneficiary ratio when future generations retire. For a variety of complex reasons, the birth rate has been declining rapidly for a decade, threatening to reduce the beneficiary ratio from worker to worker.
Even Immigration has a role to play. Social security depends on the steady influx of legal immigrants to the U.S. to help meet the number of retiring workers. Since most legal immigrants are young, they will spend decades in the labor force generating payroll income for the program. The number of legal immigrants to the U.S. has halved over the past two decades.
A congressional stalemate undermines the vision of social security
At this point, it is up to the legislature to pass legislation that strengthens the social security plan. The problem is reaching a consensus on how to best address social security Not easy.
Democrats and Republicans have not proposed any reduction in solutions to address or reduce Social Security funding. Democrats like it Increase the maximum taxable income Related to salary tax, it should be well done to pay more for the program.
At the same time, the GOP favors a gradual increase Full retirement age To cope with increased longevity. This allows future generations of retirees to either wait longer to collect their full monthly payments, or even sharply reduce the face of an early claim. However, it is designed to reduce the lifetime contribution.
Since a solution works for both parties, both are not compelled to back down and find a common ground with their opposition. Without bipartisan support, all social security laws die in the Senate, where 60 votes are needed to amend the Social Security Act.
What legislators do not want How complementary their solutions are to each other. For example, the Republicans’ proposal would take decades to achieve significant savings, thus doing little to avoid the program’s long-term monetization. The Democrats’ plan to increase additional tax revenues will effectively address long-term funding concerns.
At the same time, the Democrats’ proposal ignores some of the changing demographics discussed earlier, such as record-low birth rates and low immigration. The GOP’s proposal to gradually raise the retirement age will provide significant cost-benefit for long-term profitability. social Security.
As long as our elected officials in Washington DC work together wisely, the long-term outlook on social security may be good.