How secure is Social Security?
There has been much discussion in the media lately concerning the financial health of Social Security. This piece is intended to provide some data to answer that question. The data is gathered from the Social Security Administration web site at http://www.ssa.gov.
The Social Security Trustees produce a report every year on the financial health of the various Social Security programs that they administer. The information discussed below is only for the OASI/DI (Old Age and Survivors Insurance/Disability Insurance) Trust Funds (there are several other Social Security Trust funds). Data used below is taken from the March 2004 Social Security Trustee report and in particular from Table VI.F8 “Operations of the Combined OASI and DI Trust Funds, in Constant 2004 Dollars, Calendar Years 2004-80”.
The Trustees project the financial health of the Social Security programs using three sets of assumptions: Low Cost, Intermediate, and High Cost. They state that they believe the most likely scenario is the Intermediate Cost projection, which is used to provide the data below. Figures are rounded to the nearest billion, only the OASI/DI Trust fund is being addressed here and OASI/DI surpluses and interest are invested in U.S. Treasury bonds.
In 2004, the Trust Fund will have collected $565 billion in payroll taxes and $89 billion in interest earned from the accumulated Trust Fund bonds, which will total $654 billion. The benefit payouts will be $500 billion for a surplus of $154 billion in 2004 alone. OASI/DI has been running a surplus in most years since its inception and by 2004 has accumulated assets of $1.684 trillion (yes – trillion with a T) which is invested in Treasury bonds yielding 4 to 5 percent a year.
The Trust Fund will continue collecting the payroll tax/interest surplus until the year 2018. In 2018, payroll taxes will reach $775 billion but benefit payouts will reach $791 billion, so it is the first year that the payroll taxes, by themselves, fail to pay the benefit payout. However, the interest on the (by then $3.675 trillion) Trust Fund assets will be $206 billion so there will still be a surplus.
Starting in 2018, Congress will have to stop using OASI/DI payroll tax surpluses to help run the rest of the government, because all of the payroll taxes will be needed to pay benefits. However, Trust Fund bond interest will still be more than $200 billion a year which can be used to make benefit payments. After 2018, the Trust Fund interest will be needed in ever increasing amounts to pay benefits.
From 2018 until the year 2028, it will take all of the payroll taxes and increasing amounts of the interest from the Trust Fund bonds to make benefit payouts. However, the Trust Fund will still be running a surplus and the accumulated assets still continue to grow.
In 2028, the benefit payouts of $1,121 billion will finally exceed the combined payroll tax and Trust Fund interest amounts of $1,101 billion. OASI/DI will have to start dipping into the accumulated Trust Fund assets of, by then, $3.486 trillion in order to meet the benefit payouts.
Obviously, the system has to be “fixed” prior to the year 2028!
In the years after 2028, the Treasury will have to redeem larger amounts of Trust Fund bonds each year to meet benefit payouts because there is less and less capital to earn interest.
Assuming no congressional action before 2028, this downhill slide continues until the year 2042 when the Trust Fund assets are finally consumed. Even then, OASI/DI would still be able to pay about 75 percent of the benefits it had been paying up to that point using payroll taxes alone.
Clearly, some work is required sometime in the next 23 years with minor adjustments needed to address the facts that people are living longer and the ratio of workers to retired folks is decreasing.
The Social Security program has operated successfully for 65 years and can continue for at least another 37 years. Does this sound like a “crisis” to you?
The real “crisis” is the attitude that the Trust Fund account and its earnings are like IOUs written to ourselves and placed in a coffee can. These U.S. Treasury Bonds are owned by the Social Security Trust Fund and are not much different than bonds owned by GM, Citibank or Japan. The Treasury “defaulting” on any bond payments would make the future of Social Security the least of our countries problems.
Lawrence T. Kinkor lives in Nevada City
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