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Today we have something a little different: A reflection on what the Social Security trustees annual report might indicate about the future health of the Social Security program.
The dangers facing Social Security
The most authoritative source to answer questions about the viability of the Social Security system is the annual report of the Social Security Board of Trustees. The 2021 report should be released shortly. In this report, the trustees will forecast what will happen to the Social Security trust funds.
The trust funds are used to support future Social Security benefits. Presently, the tax revenue from Social Security taxes and the interest on the trust funds is not large enough to cover the expenditures on Social Security benefits. The trust fund is shrinking. When the trust funds are gone, the revenues from taxes will only cover 75% of the benefits that the Social Security system has promised.
A key marker in the trustees report is the date when the trust funds will be exhausted if there are no changes in taxes and benefits. In the 2020 report, the trustees forecast this date will be 2035. However, this report was written before the economy went into recession because of the coronavirus pandemic.
When the economy goes into recession, unemployment rises and fewer people pay Social Security taxes. This happened during the Great Recession in 2009, and it changed the trustees’ forecast at that time. In 2007, the forecast was that the trust funds would be exhausted in 2041. In 2010, the forecast was 2037.
This date continued to move somewhat closer in the following years, as the economy grew slowly. But then, the forecast moved to a somewhat later date as the economy improved before the pandemic hit.
Given the severity of the economic conditions during the pandemic, the date when the trust funds will be exhausted will certainly move closer. The question is by how much?
A possible clue is a Congressional Budget Office (CBO) report written in August 2020, when the economy was already in recession. The CBO did a 10-year forecast. While their forecast showed that the trust fund would have a positive balance in 2030, if you project their calculations beyond that date, the trust fund would have no funds in 2031.
That moves this key date closer by four years compared to the 2020 projection that funds would be exhausted in 2035.
After his re-election in 2004, President George W. Bush pushed for changes in Social Security funding even though the forecast at that time was that the trust fund would have a positive balance for many years to come.
Unfortunately, there have been no substantive changes in the funding of Social Security since then. Today, the funds are quickly running out.
If 2031 is close to the date in the forthcoming trustees’ report, then hopefully this will create greater pressure on Congress and President Joe Biden to do something soon about the financial condition of the Social Security system. Because if we suffer another recession in the near future, drastic action will be needed to save the system.
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I hold a doctorate in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. Presently, I am teaching at Gallaudet University.
Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.