While Social Security’s retirement and disability programs have dedicated resources sufficient to cover benefits for nearly two decades, until 2034, depletion of Social Security’s Disability Insurance (DI) Trust Fund is only a little more than one year away, in late 2016.
The recently released Social Security Trustees Report found that after trust fund exhaustion, annual revenues from the dedicated payroll tax and taxation of Social Security benefits will be sufficient to fund about three-quarters of scheduled benefits through 2089.
The 75-year actuarial deficit for the combined trust funds is estimated at 2.68% of taxable payroll, down from 2.88% of taxable payroll estimated in last year’s report. “This improvement is due to new data and improved projection methods,” the report states.
However, the Social Security DI program faces an immediate financing shortfall, as reserves are projected to be depleted in late 2016, unchanged from last year’s estimate, after which time dedicated revenues are projected to cover 81% of scheduled benefit payments.
Legislation, the report states, “will be needed to address this financial imbalance.”
Congressional action “should begin as soon as possible to reform Social Security to avoid inconceivably large tax increases or benefit cuts imposed at the last moment,” said Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center. “Workers now planning their retirement goals deserve to know that one of the foundations of their retirement will remain uninterrupted Social Security benefits.”
Senate Finance Committee Chairman Orrin Hatch, R-Utah, said the Trustee Report should serve as “a jolting wake-up call to those who say reform to Medicare and Social Security is not urgent.”
As the trustees explain, “mounting unfunded liabilities in the trillions of dollars will lead to the exhaustion of ‘trust’ funds and severe benefit cuts in the coming years absent concrete, structural changes,” Hatch said.
He added that the Medicare program that contributes to hospital costs “will be in the red in a little over a decade. And, all Social Security beneficiaries will face benefit cuts of more than 20% come 2034, absent any changes.”
“In order to avoid these dire outcomes we must take the necessary steps now to secure these vital programs and guarantee their solvency for our children and grandchildren,” Hatch stated. “To achieve this, however, the administration must lead to unite a bipartisan coalition around a set of responsible reforms. Sadly, we have yet to see such an effort.”
— Check out What if We Replaced IRAs and 401(k)s? on ThinkAdvisor.