Earlier this year, the trustees for the combined Social Security and Medicare funds reported that the well is running dry. If nothing changes to fix the problem, Social Security will need to start cutting benefits by 21% in 16 years.
Along with Medicare, Social Security might be the nation’s most important social program. According to the July 2018 report from the Social Security Administration, Social Security helps to support over 67 million beneficiaries annually. Each month, the fund pays out over $81 billion, averaging about $1,299 per recipient.
Based on the current payment schedule, the program will hit a whopping $12.5 trillion shortfall starting in 2034 and continuing into 2091. The problems are projected to begin earlier than that since 2022 is estimated to mark the point at which Social Security will begin paying out more than it brings in. So, between 2022 and 2034, the program will eat up its $3 trillion in asset reserves and then be underwater.
In order to avert the shortfall, Congress will need to act. One course of action involves increasing revenue by raising taxes and government spending. According to the trustees’ report, this would amount to an “immediate and permanent payroll tax rate increase of 2.78 percentage points to 15.18 percent.” This is a tough sell to the American public and for many politicians, especially Republicans.
Revenue can also be boosted by changing some of the current rules for Social Security. Right now, only the first $128,400 of wages are taxed, but this could be extended. Also, state and local government workers don’t currently participate as new hires, but that could change. Finally, Social Security funds could be invested in the stock market, but this would involve taking on some risk.
Another approach involves reducing some benefits to spread the negative effects for current workers and retirees receiving benefits. Lawmakers could slow the benefit growth for top earners, who are theoretically able to endure such pain. They could also increase the retirement age, citing improvements in longevity that lead to a longer working life. The criteria for qualifying for disability benefits could be tightened. Additionally, Social Security could increase its income by basing the benefit formula on annual earnings rather than lifetime earnings.
Retirees already have their share of financial worries, especially if they’re disabled. “Qualifying for Social Security Disability Insurance and Supplemental Security Income is difficult and often ends in denials,” says Laurence B. Green, a social security lawyer in Pittsburgh. Piling on more stress over funding shortfalls and benefits cuts isn’t good for anyone.
The most likely solution will blend these solutions into a compromised package. Congress definitely has their work cut out for them, and they’ll need to act fast. The longer they push back the hard work of Social Security reform, the harder the impact will be on the American public. We can start paying more today or start paying a whole lot more in the future.