Months late, the Social Security Trustees have released their report on the current financial health of the Social Security programs. You can read the full report here: http://www.ssa.gov/OACT/TR/2010/tr10.pdf.
The National Academy of Social Insurance has released its annual brief on the Trustees’ Report: http://www.nasi.org/research/2010/social-security-finances-findings-2010-trustees-report.
Here is a highlight from that brief:
According to the 2010 Trustees report, the Social Security trust funds will have an annual surplus of $77 billion in 2010. Annual surpluses are projected to continue for the next 15 years (2010-24) and reserves are projected to grow to $4,200 billion by the end of 2024. Beginning in 2025, reserves will start to be drawn down to pay benefits. In 2037, the reserves are projected to be depleted. At that time, tax income coming into the trust funds will cover about 78 percent of benefits due, according to the 2010 report of the Social Security Trustees.
Some points to keep in mind:
The most important take-home point from the Trustees Report is that Social Security works just as intended, even in the worst of economic times. Social Security Trust Funds are doing precisely what they are supposed to do – assuring full payment to all eligible persons, on time and in full.
Social Security is the nation’s most conservatively financed and carefully monitored public program. That’s why the Trustees Reports have been issued every year, since 1941. The annual Trustees Report projects income and outgo further than private pension programs and further than the Social Security programs of nearly every other nation. It is intended to provide Congress an extremely long lead time to make adjustments that are needed from time to time.
This year’s Trustees Report is doing exactly what these reports are designed to do – providing an early warning system. It projects that in 26 years, if Congress takes no action before then, Social Security’s projected revenue will cover only around 78 percent of the cost of projected benefits and expenses.
Given that Social Security is projected to be able to pay benefits in full and on time for another quarter of a century (2037) and given how important Social Security is, having proven its worth once again during this severe economic recession, proposals to restore Social Security to long-range solvency should be debated in the sunshine through the normal legislative process, as it always has been done, not through a fast-tracked commission where no commission members or even staff have as their primary expertise, Social Security and retirement income, as opposed to the budget.
The real question we should be looking at is how we want Social Security to serve families and the nation in the future. Today Social Security is the most important source of retirement income protection as well as America’s most important disability protection and life insurance protection, especially for all our children.
Some facts related to Trustees Report:
- Social Security is projected to pay all benefits in full and on time through 2037.
- Social Security’s assets (a.k.a., reserves, surplus) will continue to grow from $2.5 trillion at the beginning of 2010 through 2024, when they will reach $4.2 trillion.
- Because annual surpluses are expected to continue for the next 15 years, Social Security’s assets are projected to reach $4.2 trillion by the end of 2024.
- With no action whatsoever, Social Security will have sufficient income and assets to pay all monthly benefits in full and on time through 2037.
- Social Security is prohibited by law from contributing to the federal deficit.
- By law, Social Security cannot borrow.
- Social Security is prohibited from paying benefits if it has insufficient income and assets to cover the cost.
- Social Security can pay all benefits in full and on time after 2037 with a relatively modest increase in dedicated revenues.
- The 2010 trustees report projects that Social Security would be in complete actuarial balance for the full 75 year valuation period, if revenues were increased by the equivalent of increasing the deductions from workers’ wages by 0.92 percent, matched by employers.
- Social Security could be restored to balance more progressively, such as with a tax on sales and purchases of stock, a tax on the assets of very large estates, or by raising the payroll tax cap.*
- By increasing the revenue by a small amount more than is needed to pay scheduled benefits, those benefits could be increased either in a targeted way or across the board.
- The fact that 2010 benefit payments are projected to exceed one part of Social Security’s dedicated revenue, that from so-called payroll taxes, ignores the fact that 2010 benefit payouts are less than all of Social Security’s income combined.
- Social Security has three revenue sources: (1) mandatory contributions, deducted from the wages of workers, and matched by employers (commonly referred to as “payroll taxes); (2) interest earned on revenue not needed to pay benefits and expenses in prior years, and so invested in certificates of obligation and bonds issued by the U.S. Treasury, and (3) income taxes on the Social Security benefits of those with higher incomes.
- These three sources of revenue, taken together, are projected to exceed the cost of all benefits and associated administrative costs in 2010 by a projected $76.7 billion, according to the 2010 Trustees Report.
- There is nothing new or surprising about Social Security’s benefits exceeding the payroll tax contributions.
- Benefits exceeded payroll tax contributions in 1958, 1959, 1961, 1962, 1965, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1982 and 1983. The sky did not fall. Indeed, the trust funds acted as intended, providing a margin of safety so that benefits could be fully paid, even in very difficult economic times. (see Table 4.A3—Combined OASI and DI, 1957–2008 in the Social Security Administration’s Annual Statistical Supplement, 2009; http://www.ssa.gov/policy/docs/statcomps/supplement/2009/4a.pdf).
- Since 1983, Congress has required all covered workers to have relatively large amounts withheld from wages, and invested in Treasury bonds whose interest could be used when needed. The recession has accelerated by a few years the date that some of the interest is needed.
- In the 1970’s and early 1980’s, the trustees redeemed bonds in order to pay scheduled benefits.
[Thanks to SocialSecurity-Works.org for the facts and figures above.]
*Currently, workers only pay FICA tax on salary up to $106,800. Any money earned above that limit is not taxed.