Social Security trust funds are sound for at least the next 10 years, but deficits will increase beginning in 2021, according to the 2012 Social Security Trustees report released Monday. The report notes that assets in the Old Age and Survivors Insurance trust fund and the combined OASI and Disability Insurance (OASDI) trust funds will be “adequate” for the next decade.
However, assets in the DI trust fund are projected to fall below 100% of the annual cost by the beginning of 2013. The report notes that between 2010 and 2011, the increase in the number of beneficiaries claiming DI benefits “was more pronounced than the corresponding increase in the number of OASI beneficiaries, due to the increase in applications for disability benefits associated with the weak economy.” The Trustees expect the DI fund to be exhausted by 2016. Assets for the OASI trust fund are expected to be exhausted in 2035.
When looking at the combined assets of the OASI and DI trust funds, the Trustees’ projection is not so bleak. Combined assets are expected to increase from $2.69 trillion at the beginning of 2012 to $3.06 trillion by the beginning of 2021. However, in 2021, annual costs will begin to exceed total income. Excluding interest earned on trust fund assets, annual cost exceeds non-interest income in 2012 and remains higher throughout the remainder of the short-term period.
At the end of 2011, the OASDI program provided benefits to about 55 million people, including 38 million retired workers and their dependents, and 11 million disabled workers and their dependents, according to the report. The program took in $805 billion, including $691 billion in non-interest income and $114 billion in interest earnings, with expenditures of $736 billion. Assets held in special issue U.S. Treasury securities grew to $2.7 trillion.
Trustees project that the deficit between Social Security’s costs and tax income will be $165 billion in 2012, up from $148 billion last year. The report attributes the deficit to a temporary reduction in the Social Security payroll tax for 2011 and 2012. The deficit excluding interest in 2011 was $45 billion; in 2012, it’s expected to increase to $53 billion.
In the long term, the Trustees expect the combined assets of the OASI and DI funds to be fully exhausted in 2033. Projected OASDI costs generally increase faster than non-interest income, according to the report, because as boomers retire, the number of beneficiaries claiming Social Security benefits will increase faster than the increase in the number of new workers. The Trustees project that between 2035 and 2050, costs will decline due to the aging of the already retired boomers. After that, OASDI costs will increase relative to non-interest income, but more slowly than they did prior to 2035.
OASDI costs are currently 5% of GDP and are projected to rise to 6.4% by 2035. The Trustees project costs will fall to 6.1% of GDP by 2055 and remain near that level until 2086.
The report suggests that to keep the trust funds solvent, lawmakers should:
- Increase the combined payroll tax rate from its current level of 12.4% to 15%.
- Reduce scheduled benefits by 16.2%.
- Draw on alternative sources of revenue.
- Adopt some combination of these approaches.
“Lawmakers would have to make significantly larger changes for future beneficiaries if they decide to avoid changes for current beneficiaries and those close to retirement age,” according to the report.
The Trustees’ report met with mixed emotions from industry groups.
The Strengthen Social Security campaign predicted on April 19 that the Trustees report would reveal a “large and growing” surplus.
“Rather than frightening hard-working Americans who have earned their benefits and demagoguing the issue, policymakers should simply eliminate Social Security’s projected shortfall, still decades away, by requiring millionaires and billionaires to pay the same rate of contributions as most Americans pay,” Nancy Altman, co-chair of the Strengthen Social Security Campaign, said in a statement following the release of the Trustees report.
Social Security is the “most sound source of retirement, disability and survivor protection” for American workers and their families, Eric Kingson, co-director of Social Security Works, the group responsible for the Strengthen Social Security Campaign, said in the statement. “What we really need to focus on is the impending retirement income crisis facing working Americans, especially those in their forties and fifties whose retirement savings have been hit hard by the Great Recession, the collapse of the housing market, slow wage growth and loss of pension protections.”
Other groups were not so positive. The Committee for a Responsible Federal Budget said Social Security was on an “unsustainable path.”
“The Trustees report is a good reminder of what we’ve known for decades now—that the Social Security program is on a troubling path and must be reformed,” said Maya MacGuineas, president of the Committee for a Responsible Budget. “Time is not on our side, and the longer we wait the harder it is going to be to fix this program.”