August 15, 2014

In July the Social Security Board of Trustees issued its annual report on the financial status of the program. According to the report, Social Security will not be able to cover its full obligations as early as 2033. If no action is taken, after 2033 Social Security could only pay three-fourths of scheduled benefits.  

The Trustees recommend Congress act sooner rather than later to right the programs trajectory, so there is more time to phase in potential changes. Earlier action will also help minimize any adverse impacts on affected beneficiaries.   

Resolving the financial shortfall will likely require a bipartisan solution that raises taxes, reduces benefits, increases the retirement age, or some combination of the three. None of the available options are politically popular, but a compromise solution has been discussed in recent attempts to tackle the deficit.  

The report’s projections are largely unchanged from last year, meaning that the program has neither deteriorated nor improved significantly since the Board’s 2013 report.  

Those who fear that Social Security will not be around at all when today’s working-age population retires misunderstand the Trustees’ projections.  

The Social Security program shortfall is relatively modest, amounting to 1 percent of gross domestic product (GDP) over the next 75 years. The Trustees and others have sought a combination of tax increases and benefit modifications, carefully crafted to shield recipients with limited means and to give ample notice to all participants. Such actions could put the program on a sound footing indefinitely.   

Social Security benefits are hardly lavish. The average retiree or survivor receives less than $16,000 a year from Social Security; the average disabled person even less.   

Congress will have to replenish a smaller, but separate, disability insurance trust fund by 2016 to keep it solvent. Because the retirement and disability components of Social Security are closely woven together, the Trustees recommend a comprehensive solvency package.  

This is a hardly a new issue, and with the November elections on the horizon a “grand bargain” on deficit reduction and entitlement reform is very unlikely in the near future.   

Congress may have an appetite to tackle these tough issues in 2015, when the threat of sequestration returns and concerns over Social Security and Medicare continue to intensify.