Without taking anything from Medicare, social security is arguably the most important social program in this country.
For many of the more than 62 million beneficiaries – 42.8 million of whom are retirees, as of March 2018 – Social security is more than just a check. It is a financial lifeline or foundation for retirees, disabled and survivors of workers who have died. The Center for Budgetary Policy and Priorities, which was found in 2016, guarantees that 22.1 million people, of whom 15.1 million are pensioners, are excluded from poverty.
There is a Great Change in Social Security
But this crucial program, which so many retired workers trust and rely on, is only a few years away from a major change according to estimates by the Social Security Board of Trustees in its 2017 report published in 2017.
In each year since 1982, the OASDI has generated more income than it has paid in benefits. As a result, Social Security's reserves grew to nearly $ 2.9 trillion. By 2021, this surplus cash value, which is mainly invested in special issue bonds, is expected to be around $ 3 trillion. But that's when things change.
According to the interim cost forecasts of the Board of Trustees, 2022 will be the first time in four decades that social security pays more than revenue. Worse still, it is expected that this cash outflow will only worsen with each passing year. Here is a look at the net increase or decrease of OASDI based on the model of average cost (page 48 of the 261-page report for those interested):
- 2017: $ 58.6 billion  2018: $ 44.7 billion
- 2019: $ 29.3 billion
- 2020: $ 16.8 billion
- 2021: $ 3.3 billion
- 2022: $ 18.2 billion decline
- 2023: $ 46.4 billion decline
- 2024: $ 75.7 billion decline
- 2025: $ 108.9 billion decrease
- 2026: $ 143.8 billion decline
By 2026, not only will the Social Security's asset reserves be depleted by nearly $ 395 billion from their peak in 2021, but the Trust fund ratio, which describes the percentage of the asset reserves in relation to the scheduled payments to be paid from 298 percent in 2002, go back to 2017 to 165% in 2026.
Why is this happening?
The first question that probably comes up is "Why?" Why is this happening to a program that has existed for more than eight decades? The answer is the result of a number of factors.
First, part of the problem is that baby boomers are leaving the workforce and retiring in droves. We certainly can not blame the baby-boomers when they were born, but this rapid increase in eligible beneficiaries puts a strain on the ratio of workers to beneficiaries. In even simpler English, there is simply not enough new workforce to counteract the number of boomers who retire and qualify for social security benefits.
The longer life expectancy is another core problem of the program. When the social security agencies signed the law in 1935, they provided that it would provide a financial basis for low-income workers for several years during their retirement. But since 1960, average life expectancy in the US has increased by about nine years. Data from the SSA shows that the average 65-year-old lives today for about another two decades and gives seniors the opportunity to receive a social security payment for decades rather than years, as originally intended.
Income inequality is also something to blame. The wealthy have access to preventive care and medicine, as is not always the case with low-income people. As a result, the rich live longer on average than low-income workers. This increased longevity, along with the fact that higher revenues often mean greater social security, has allowed the rich to burden the program.
Even the Federal Reserve may be complicit. Keeping interest rates at a record low for seven years has negatively impacted the returns on the above-mentioned special issue bonds into which Social Security is investing its excess cash. This has a negative impact on interest income.
All these factors, along with Congress's inability to agree on a social security solution, have helped the impending shift in social security from positive cash flow to a negative cash flow program
What does that mean for current and prospective retirees? ?
Now for the other, very important question: What does that mean for you, the worker?
I will not gloss over things. It's not good news. But it is not as bad as you might think, even if the trustee's report is correct and the social security reserves are completely exhausted by 2034.
The good news, if there is a silver lining here, is Social Security can not go bankrupt. America's main social program is funded in three ways:
- 12.4% payroll tax on labor income between $ 0.01 and $ 128,400 from 2018
- Savings on capital assets
- Taxation of social security benefits  19659019] These last two categories account for a relatively small percentage of the revenue collected every year. In 2016, the taxation of services generated $ 32.8 billion, while interest income added $ 88.4 billion. Meanwhile, payroll tax was $ 836.2 billion (87.3%) of the $ 957.5 billion accumulated in 2016. As long as payroll tax remains the main social security funding mechanism and Americans continue to work, the program will generate revenue that can be paid out to eligible beneficiaries. This ensures that the program can not go bankrupt.
The drawback is that this does not protect against a possible reduction in current or future benefits. If social security reserves wane in 2022, this is a sign that the current disbursement plan is unsustainable. The trustee's report suggests that a flat-rate cut in benefits of up to 23% may be required to sustain payouts by 2091. With 62% of today's seniors, at least half of their monthly income is dependent on social insurance up to 23% could prove devastating.
Ultimately, the Board of Trustees report is a wake-up call for today's working Americans to reduce their expected dependence on social security during retirement. It is not excluded that legislators will find a solution before 2034 and find new ways to generate additional revenue and / or reduce program costs. But how many times have lawmakers in Washington kicked the can on Social Security and insisted on politicians save? The program of steep profit cuts does not seem to be a smart move.