Social Security Storm Ahead

From the Committee for a Responsible Federal Budget:

The Social Security Trustees released their annual report today, continuing to show that the Social Security program must address its funding imbalances to prevent across-the-board benefit cuts or abrupt changes in tax or benefit levels. They find:

• Social Security Will Be Insolvent in Only 16 Years. Social Security cannot guarantee full benefits for current retirees. The Trustees project that on a theoretical combined basis, the trust funds will run out by 2035. That means the program will be insolvent when today’s 51-year-olds reach the retirement age and today’s youngest retirees turn 78. At that point, all beneficiaries will face a 20 percent across-the-board benefit cut, which will grow to 25 percent over time.

• Social Security Faces Large and Rising Imbalances. The Social Security program will run cash deficits of nearly $1.8 trillion over the next decade, the equivalent of 1.8 percent of payroll or 0.6 percent of GDP. Program deficits will rise to 3.3 percent of payroll (1.2 percent of GDP) by 2040 and 4.1 percent of payroll (1.4 percent of GDP) by 2093. Social Security’s 75-year actuarial imbalance totals 2.78 percent of payroll, which is nearly 1 percent of GDP and $14.8 trillion in present value terms.

• The Problem Is Similar to Last Year, but It Has Deteriorated This Decade. This year’s projected 75-year shortfall is slightly better than last year’s – 2.78 percent of payroll as opposed to 2.84 percent – due to improvements in the disability program’s finances. However, Social Security’s shortfall has grown dramatically since 2010, from 1.92 percent of payroll to 2.78 percent in this year’s report.

• Lawmakers Must Start Making Changes Immediately. The sooner changes are made, the less severe they will need to be. Restoring solvency today would require the equivalent of a 22 percent increase in payroll taxes, a 17 percent reduction in all benefits, a 20 percent cut to new benefits, or some combination. Waiting until 2035 would increase the needed adjustments to overall taxes and benefits by over a third and would make it impossible to save Social Security with changes for new beneficiaries alone. Acting now would also allow policymakers to phase in changes gradually.

With Social Security only 16 years from insolvency, policymakers cannot afford to continue delaying action. Significant changes to revenue, benefits, or more likely both will be needed to secure the program. Refusing to make changes or compromises today to fix Social Security means putting the retirement security of 84 million beneficiaries and another 190 million workers at risk.