Social Security shortfall: Trust fund to run dry in 2035, trustees predict

[Teh One Who Knocks]

By Brittany De Lea | FOXBusiness


https://i.imgur.com/VIJZ2ou.jpg

Social Security’s reserve funds are expected to be depleted in 2035, at which time the program will no longer be able to pay out benefits in full.

That’s according to the annual Social Security and Medicare trustees report released on Monday, which said total costs of the program, which covers the old age and disability insurance programs, will exceed income in 2020 – for the first time since 1982. That’s two years later than projected last year, but means the program will have to dip into its reserves to cover benefits at that time.

By 2035 those reserves will be depleted, and 80 percent of benefits will be payable.

In 2018, the trustees forecast that 100 percent of benefits would be covered through 2034, meaning the trust fund gained an extra year before expected depletion. However, the trustees are still urging lawmakers to take action sooner than later.

“Both Social Security and Medicare face long-term financing shortfalls under currently scheduled benefits and financing,” the trustees wrote.

Taken separately, the Old-Age and Survivors Insurance (OASI) trust fund will have enough reserves to pay full benefits through 2034. The Social Security disability fund, however, will not run out until 2052, about two decades later than what last year’s report projected. That change was attributed to a decline in disabled-worker applications and disability incidence rates.

The trustees combine the programs in the report to summarize the overall state of Social Security's finances.

Medicare’s hospital insurance trust fund is expected to run out of money in seven years, which remains the same as last year’s projections.

As a share of GDP, the annual cost of Social Security will increase to 5.9 percent by 2039 – up from 4.9 percent last year. Total Medicare costs will rise to 5.9 percent by 2038, up from 3.7 percent.

As of the end of March, more than 68.3 million people were receiving Social Security, Supplemental Security Income, or both. The average benefit was $1,347.06.

Combined, Social Security and Medicare accounted for about 45 percent of the federal budget in fiscal 2018.

[Teh One Who Knocks]

And yet democrats keep pushing the 'medicare for all' BS when they can't even do this right.

[RBP]

I don't buy the language in this article. Disability got so out of control that they changed the allocation system in 2015 to put less money into retirement benefits and more into disability claims. Then they tightened the screws on disability claims making it harder to get (which they should have because disability has become unemployment for people who have left the workforce). It's combined funds for all intents and purposes, the separated numbers are not very meaningful.

[Muddy]

You should only be able to get out what you put in. (I know I am wasting my breath)

[Teh One Who Knocks]

You should only be able to get out what you put in. (I know I am wasting my breath)

Stop being logical :hand:

[Muddy]

Stop being logical :hand:

Will we ever have a candidate that can do that?

[RBP]

It's a Ponzi scheme. And I don't believe there is an actual trust fund. Wasn't it converted it to bonds to rob the cash? So it's all IOU's?

[Teh One Who Knocks]

It's a Ponzi scheme. And I don't believe there is an actual trust fund. Wasn't it converted it to bonds to rob the cash? So it's all IOU's?

Pretty much this. Congress couldn't keep their hands off all that money just sitting there, so they kept 'borrowing' against it.

[Teh One Who Knocks]

It's a Ponzi scheme. And I don't believe there is an actual trust fund. Wasn't it converted it to bonds to rob the cash? So it's all IOU's?


Pretty much this. Congress couldn't keep their hands off all that money just sitting there, so they kept 'borrowing' against it.

I guess not....


================================================== =====================

The Social Security Trust Fund Is Full of IOUs, Right? Wrong.
By Melanie Waddell - ThinkAdvisor

https://i.imgur.com/BSmXDJB.jpg

The annual calculations regarding the sustainability of the Social Security and Medicare trust funds are misleading and meaningless, and these funds have no assets other than a federal promise to pay. Right?

Wrong, say two Social Security experts.

“The law requires annual reports,” Nancy Altman, president of Social Security Works, a group that supports expanding the Social Security system, told ThinkAdvisor in a Monday email message. Altman, a former tax attorney and the co-founder of the group, was the assistant to former Federal Reserve Board Chairman Alan Greenspan when he chaired the bipartisan commission that developed the 1983 Social Security amendments.

Shia Akabas, economic policy director for the Bipartisan Policy Center in Washington, echoed Altman’s stance. The Boards of Trustees for Social Security and Medicare “are required by law to issue yearly reports on the status of both of Social Security’s trust funds — the Old-Age and Survivors Insurance (OASI), and the Disability Insurance (DI) trust funds — and the two Medicare trust funds,” he said. “Much of what is included in the reports is required precisely by statute.”

The two programs are “insurance programs,” added Altman, who also taught at Harvard University’s Kennedy School of Government and the Harvard Law School.

The Federal Insurance Contributions Act, or FICA, “requires that the revenue be dedicated to Social Security, only to be used for the payment of benefits and related administrative costs. Until the funds are needed, the law requires that the monies be held in trust and invested,” she explained. “From the beginning, Congress has required that the funds be invested in the most secure investment around — Treasury bonds backed by the full faith and credit of the United States. These are not casual promises to pay, but legal instruments that have the same legal protection and standing as all other treasury bonds.”

The “IOUs” pejorative was “first used in the 1936 presidential election by Alf Landon to try to discredit the newly enacted program,” Altman continued, and those who still call them IOUs “are either uninformed or deliberately seeking to undermine confidence.”

BPC’s Akabas, who assisted Fed Chairman Jerome Powell in his work on the federal debt limit, and now steers BPC’s Commission on Retirement Security and Personal Savings, told ThinkAdvisor in his email message that the Social Security OASI trust fund “is indeed an accounting mechanism rather than a store of value, but it is important for both political and policy reasons.”

Why? “First, by law, the program cannot pay out more in benefits than its income once the trust fund’s assets are exhausted. That would mean a 23% cut to benefits in 2034. So there are serious practical implications of the trust fund balance, which is one reason why it’s important have that information disseminated.”

From a policy perspective, he continued, “the program for many years took in more than it paid out (reducing annual budget deficits), so on a cumulative basis, the program has more than paid for itself to date and has not yet added to debt held by the public. For that and other reasons, there is a compelling case that reforms to make the program sustainable can and should be phased in gradually.”

The trust fund is also a focal point for political action, Akabas added. “If the trust fund didn’t exist and there was no automatic change in benefits on the horizon to keep the program in balance, then the will for political action to reform the program and make it sustainable would likely be even lower than it is today. In fact, the trust fund is what forced action in the 1980s deal that extended the life of the program for more than half a century.”

[RBP]

That's a confusing article.


The Federal Insurance Contributions Act, or FICA, “requires that the revenue be dedicated to Social Security, only to be used for the payment of benefits and related administrative costs. Until the funds are needed, the law requires that the monies be held in trust and invested,”


the program for many years took in more than it paid out (reducing annual budget deficits)

[Teh One Who Knocks]

I guess it means because the trust fund had a surplus for some years, that surplus showed as a + for the federal government and made budget deficits look smaller than they actually were? :dunno:

[RBP]

I guess it means because the trust fund had a surplus for some years, that surplus showed as a + for the federal government and made budget deficits look smaller than they actually were? :dunno:

But did they take the money or was that just on paper?

[Teh One Who Knocks]

But did they take the money or was that just on paper?

:dunno:

[PorkChopSandwiches]

I better get my money

[RBP]

I better get my money

Your money's gone, you better hope that the Ponzi scheme pays out with money from the taxpayers to come.

[Muddy]

Your money's gone, you better hope that the Ponzi scheme pays out with money from the taxpayers to come.

Open up the borders..!! /s

[Teh One Who Knocks]

By Sean Williams - The Motley Fool


https://i.imgur.com/O9GZzvp.png

News flash, America: Social Security is in trouble.

According to the latest estimates in the Social Security Board of Trustees 2016 report, seniors' most vital social program is just 17 years away from exhausting its $2.8 trillion in spare cash. If the trust funds run dry, the Trustees predict that an across-the-board benefits cut of up to 21% may be needed to sustain payouts through 2090. For the roughly 25 million retired workers who currently count on Social Security for at least half of their monthly income, this is a terrifying outlook.

If there's good news, it's that the program will remain solvent. Social Security benefits are primarily covered by payroll taxes, which means that as long as people keep working, Social Security will always be generating revenue. However, the way things are going, today's payout rates won't be sustainable beyond 2034.

Congress needs to act decisively, and soon, to fix Social Security -- and our federal legislators have a number of potential solutions to choose from. However, partisan bickering has made it all but impossible for the two predominant parties to find a middle ground.

Here are 20 Social Security solutions that have been proposed. Some would partially or completely eliminate the estimated $11.4 trillion long-term budgetary shortfall. Others would actually cost the program more money by making benefits more generous. And still other ideas are nothing short of insane.

https://i.imgur.com/BjmQQx0.png

1. Raise the Social Security earnings cap

One of the most logical solutions presented to fix Social Security, and one that is commonly offered by Democrats, is to raise Social Security's maximum taxable earnings. As of 2017, earned income between $0.01 and $127,000 is taxable at 12.4%, with employers and employees usually splitting this payroll tax down the middle at 6.2% each. This means that the approximately 10% of Americans who earn more than $127,200 annually have at least some of their income untouched by the payroll tax.

For instance, the recently reintroduced Social Security 2100 Act would reinstitute the payroll tax on earned income over $400,000. In simpler terms, earned income between $0.01 and $127,200 would be taxed, then a moratorium would exist on earned income between $127,200 and $400,000, followed by a reinstitution of the payroll tax at earned income above $400,000.

2. Eliminate the Social Security earnings cap

Taking the first point a step further, another Social Security fix would eliminate the payroll tax earnings cap altogether. In other words, every cent of earned income would be subject to the 12.4% payroll tax. Since it would only impact about 10% of the population, this solution has a lot of public support. It would also completely eliminate Social Security's budgetary shortfall.

On the flip side, the wealthy would get something of an unfair shake. Despite paying more into the program, they wouldn't get increased benefits, because Social Security's monthly benefit is capped (at $2,687 in 2017).

3. Raise the full retirement age

Another logical solution to save Social Security for the long term includes raising the full retirement age (FRA), or the age at which the Social Security Administration (SSA) deems you eligible to receive 100% of your monthly benefits. Your FRA is determined by your birth year.

Why raise the retirement age? The simple answer is that it would account for Americans' increasing life expectancies by forcing retirees to wait longer to collect 100% of their benefit -- or accept a larger reduction in their monthly payout by claiming early. Changing the FRA would likely reduce benefits for future generations of workers, but it would save the program a lot of money. It's a fix commonly suggested by Republicans.

https://i.imgur.com/2YJuEgN.png

4. Change the cost-of-living measure to the CPI-E

Not every proposed Social Security "fix" is intended to shore up the program's finances. In fact, many think Social Security doesn't pay quite enough to its retired beneficiaries. One popular change that many Democrats support involves altering how Social Security makes its annual cost-of-living adjustments.

Right now, the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as a measure of inflation to determine how much of a raise beneficiaries receive each year. This proposed solution would switch that measure to the Consumer Price Index for the Elderly (CPI-E).

The CPI-E specifically takes into account the spending habits of households with persons aged 62 and up. The thinking is that the CPI-E would more accurately reflect the housing costs and medical expenses that seniors face. The downside of this fix is that while it would almost certainly increase monthly payouts for seniors, it would deplete Social Security's Trust even faster.

5. Change the cost-of-living measure to the Chained CPI

If there's such a thing as the opposite of the CPI-E, it's the Chained CPI. This more conservative measure of inflation is favored by many Republicans.

The Chained CPI accounts for "substitution" -- that's when consumers start buying cheaper goods and services as other ones become too expensive. The CPI-W does not factor in substitution, therefore moving to the Chained CPI would result in lower annual raises. That would lead to a modest improvement in Social Security's cash position, but it would be bad news for retirees who count on those annual raises to help cover rising medical and housing costs.

6. Freeze the purchasing power of benefits for the wealthy

Though not nearly as popular as the aforementioned fixes, the idea of freezing the purchasing power of the upper-middle class and wealthy has been floated on Capitol Hill.

Under this proposal, Social Security recipients below a certain income threshold would be eligible to receive an annual cost-of-living increase in their benefits (assuming the CPI-W warranted one), while those above the threshold would see their benefits remain the same (i.e., frozen). As the price of goods and services increases over time, the purchasing power of the benefits paid to wealthier seniors would decline. Estimates suggest that going this route could eliminate more than half of the program's long-run cash shortfall.

7. Freeze the purchasing power of benefits for everyone

Taking things one step further, others have proposed the (unpopular) and somewhat ridiculous idea of freezing the purchasing power of benefits for every single Social Security recipient. In such a scenario, everyone's current benefits would remain static as the price for most everything else rose around them. This would be particularly harmful to low- and middle-income Americans.

On the other hand, freezing the purchasing power of benefits for everyone would essentially close Social Security's long-term budgetary shortfall.

8. Means-test for benefits

An intriguing idea offered up by President Donald Trump during the early stages of his campaign was means-testing for benefits. Means-testing would involve setting an annual income threshold, and seniors earning more than the threshold would get a reduced payout or no payout at all.

Why means-test? The thinking here is that seniors earning a lot of money -- say, $100,000 annually -- probably won't be reliant on their Social Security income during retirement. Thus withholding some or all of this payment could extend the life of the program. Models have suggested that means-testing would modestly shrink the long-term cash shortfall.

9. Progressively link longevity to benefits

The bipartisan Save Our Social Security Act of 2016 presented perhaps the most sensible idea with regard to adjusting Social Security for greater life expectancies: index the full retirement age for longevity. In other words, the full retirement age would increase in step with life expectancies, as would the age at which delayed-retirement credits max out (which is currently age 70).

Why index benefits to life expectancy? One of the biggest issues for the program is that Americans' life expectancies have risen far faster than Social Security's full retirement age. That means retirees are drawing benefits for a much longer period of time. Indexing would presumably encourage seniors to wait longer to file for Social Security, and it would lower the average amount of time that seniors spend drawing benefits.

https://i.imgur.com/38JR9NK.png

10. Use the estate tax as a means to cover the shortfall

Lawmakers at some point proposed the (bad) idea of utilizing the estate tax to help mitigate the expected long-term budgetary shortfall in Social Security. The estate tax, also known as the death tax, is a tax levied on the assets of estates worth more than $5.49 million for an individual, and double that for a couple, as of 2017. Implementing this change would redirect estate tax revenue away from the federal government's general funds and toward Social Security.

You can probably guess why this isn't a great idea: It's merely a transfer of problems from one area of government to another. On top of that, Trump's latest tax plan proposes eliminating the estate tax, so this solution may not even be a possibility before long.

11. Transfer start-up costs to general government revenue

Chalk this one up as one of the head-scratchers: One suggestion is to transfer Social Security's start-up costs to general government revenue.

When Social Security came into being eight decades ago, people were paying far more into the program than it paid out in benefits. Over eight decades, these "start-up costs" have been baked into the program. The idea would be to remove these costs, transfer them to general government revenue, and tie each generation's benefits to what it pays into the program. Essentially, it would make Social Security budget-neutral. Unfortunately, though, it would necessitate immediate tax hikes or benefit cuts if implemented.

12. Phase out or end the taxation of benefits

Here's another "solution" that aims to increase the amount Social Security beneficiaries receive, rather than to plug the leak in Social Security's trust fund. In December 2016, Rep. Sam Johnson (R-Tx.) introduced the Social Security Reform Act of 2016. One of its more interesting proposals was to phase out the taxation of Social Security benefits by 2045 and eliminate them completely by 2054.

Individuals earning more than $25,000 annually, and couples filing jointly with more than $32,000 in annual income, have at least some of their Social Security benefits taxed. Johnson's bill would end the practice of taxing Social Security benefits, which would be a plus, given that the tax thresholds haven't been adjusted in 34 years. The upside is that it would put more money back in the pockets of seniors. The downside is that it would eliminate a revenue stream that brought in $31 billion for the program in 2015.

13. Eliminate the retirement earnings test

Another intriguing component of Johnson's Social Security Reform Act of 2016 would eliminate the retirement earnings test, which affects seniors who are working and receiving benefits but haven't reached their full retirement age.

Here's how this works in 2017: For every $2 in wages above $16,920 in income, the SSA can withhold $1 in benefits if you haven't reached your FRA and won't do so during the calendar year. If you will reach your FRA later this year, the SSA can withhold $1 in benefits for every $3 in wages above $44,880 until you reach your FRA. Though you will theoretically get these withheld payments back in the form of a higher benefit after your FRA, the fact that the SSA can withhold benefits prevents seniors from "double-dipping" with a job and their retirement benefits. Eliminating the retirement earnings test would allow seniors to keep this income up front. Unfortunately, it wouldn't help to eliminate the Social Security cash shortfall.

14. Allow for a partial or full privatization of the program

A number of Republican lawmakers, including both President Trump and Vice President Mike Pence, have advocated for a partial privatization of Social Security. In simpler terms, a small percentage of an individual's retirement benefits would be placed into a retirement account that they could invest as they see fit.

The advantage for the federal government is that it pawns off a portion of the retirement responsibility on Americans, and it theoretically gives people the chance to top the rather small returns generated by Social Security's spare cash, which is invested in special-issue bonds and certificates of indebtedness. The downside? Financial literacy is tragically low in America, which means Americans could make poor investment choices that leave them in even worse financial shape come retirement.

15. Offer seniors a buyout

A decade ago, Republican presidential candidate Mike Huckabee proposed a pretty wild idea: He suggested that wealthy individuals who wouldn't be reliant on Social Security be offered a one-time buyout. The idea was that these wealthy individuals could buy a tax-free annuity with their buyout, freeing the federal government from making payments to these well-to-do folks.

While tax-free annuities would likely be appealing to wealthier individuals looking to reduce their federal tax liability during retirement, this solution didn't get a lot of attention because it would only have had a minimal impact on the long-term budget shortfall.

16. Eliminate the payroll tax in lieu of a value-added tax on consumption

Arguably the most insane idea of the bunch was recently floated by Republican lawmakers: eliminating the payroll tax -- Social Security's main source of funding -- and replace it with a value-added tax on consumption.

Why eliminate the SSA's payroll tax? Removing the 6.2% that most workers pay means $3,100 more in the pockets of the average American family each year. Since we're a consumption-based economy, that extra cash would likely boost U.S. GDP growth.

But herein lies the issue: Social Security would need a new source of funding, as payroll taxes supplied 86.4% of its revenue in 2015. It would also make the program dependent on consumption, which can swing wildly during periods of growth and recession. It's a pretty crazy idea.

https://i.imgur.com/GJEkzY3.png

17. Increase payroll taxes across the board

A surefire way to eliminate Social Security's budgetary shortfall is to increase payroll taxes across the board for all working Americans. This would mean benefits stay consistent for current and future retirees, but it also means current workers would have to make do with less, which could impact their already poor savings habits.

How much would payroll taxes need to be raised? According to the Social Security Board of Trustees, the actuarial deficit in 2016 was 2.66%. It means the payroll tax would need to be increased by 2.66% to 15.06% from 12.4% to cover the long-term shortfall through 2090. Since most workers split this tax with their employer, it means they'd pay an extra 1.33% out of every paycheck. Since taxes aren't too popular with the public, this surefire solution has received minimal support, at least at the proposed tax level. Smaller tax increases have received more public support.

18. Cut benefits on everyone right now

Another surefire solution that has even less support from the public (and especially seniors) is the idea of cutting benefits for everyone right now. The Trustees report has already declared that the trust fund's depletion is imminent, so this solution is based on the idea that we should adjust to a lower payout well in advance.

The benefit to this solution is that it fixes Social Security's 75-year shortfall. The downside is also obvious: Everyone loses up to 21% of their monthly retirement benefits from Social Security at the flip of a switch.

19. Do nothing and raise taxes in 2034

And then we have what could construed as one of the laziest and most unpopular Social Security fixes for working Americans. This plan would advocate doing nothing over the next (estimated) 17 years and then raising payroll taxes once the trust's cash coffers are dry.

Once again, this plan completely eliminates any cash shortfall, but it comes with two major downsides. First, there would be an immediate jolt to working Americans in the form of a suddenly higher payroll tax. Secondly, this payroll tax increase would be significantly higher than the 2.66% actuarial deficit suggested by the 2016 Trustees report. As the budgetary shortfall steadily grows, so does the payroll tax increase necessary to close it.

20. Do nothing and cut benefits in 2034

Last but not least, we have what may arguably be described as the least popular solution of all among the public: doing nothing and simply cutting benefits when the Trust exhausts its spare cash in 2034.

Like many of the other unpopular solutions, cutting benefits would resolve the problem, but it would be a devastating blow to those receiving benefits at the time. It would also be bad news for future generations of retirees, as it would result in a benefits cut of up to 21%.

It's unlikely that Congress will simply let Social Security's trust fund run out, but there's no indication of how lawmakers will patch the program up. Based on history, the only thing we can be sure of is that there will be a good deal of bickering, stalling, and can-kicking on Capitol Hill before a solution is agreed upon.

[Muddy]

20 pipe dreams..^^

[Hikari Kisugi]

It's a Ponzi scheme. And I don't believe there is an actual trust fund. Wasn't it converted it to bonds to rob the cash? So it's all IOU's?

I ponder the same, our 'national insurance' is completely made up, and funds pensions from direct contributions of those paying now, there is no fund, there is no amount, it doesn't even exist on a ledger.

[perrhaps]

Your money's gone, you better hope that the Ponzi scheme pays out with money from the taxpayers to come.

And, like the old Bartles&James ads, every month my wife and I thank you for your support.

Seriously, this entire situation could be remedied by either raising the SS retirement age levels by one year, or reinstating the SSN withholding after an individual earns more than $400k annually. Wouldn't it be nice to have a government that actually governs?

[PorkChopSandwiches]

Eliminate the cap, problem solved

[RBP]

Eliminate the cap, problem solved

For some reason, I thought they did. :-k But I see it's at $132,900 for 2019, so clearly not.

[Teh One Who Knocks]

Eliminate the cap, problem solved

Yup, from the article above it says it would completely eliminate the problem.


2. Eliminate the Social Security earnings cap

Taking the first point a step further, another Social Security fix would eliminate the payroll tax earnings cap altogether. In other words, every cent of earned income would be subject to the 12.4% payroll tax. Since it would only impact about 10% of the population, this solution has a lot of public support. It would also completely eliminate Social Security's budgetary shortfall.

On the flip side, the wealthy would get something of an unfair shake. Despite paying more into the program, they wouldn't get increased benefits, because Social Security's monthly benefit is capped (at $2,687 in 2017).

As for the wealthy getting an 'unfair shake', they aren't depending on SS income to live on, so it's not that big a deal. Plus you could tell all those whiners that scream "FAIR SHARE!" all the time that they are, they're paying money into SS that they will never get back, ever.

[RBP]

If you make $500k, that's an extra $45k in SS taxes, or $3750 per month, more than the max SS benefit. Maybe a lower marginal rate would be better.

[Teh One Who Knocks]

If you make $500k, that's an extra $45k in SS taxes, or $3750 per month, more than the max SS benefit. Maybe a lower marginal rate would be better.

Is that number the full 12.4% tax rate or half? Because that number is split in half between employer and employee.

[RBP]

Is that number the full 12.4% tax rate or half? Because that number is split in half between employer and employee.

That's the full amount. I forgot that part. But that's interesting since it would also greatly increase the corporate funding.