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On Tuesday, the trustees of the Social Security Trust Fund issued their annual report. It’s getting bleak; like our 401(k) statements.
Of all the key projections, the keyest projection of all is the year the retirement Trust Fund is expected to run bone dry. That is now projected to happen in 2037, a full four years earlier than last year’s projection. That’s a big change. And it’s as much a testament to the fragility of long-term projections as it is to the fragility of the Fund.
What happens when the well runs dry? Revenues are then still pouring into the Fund—remember all those FICA taxes you’re paying—but they will be insufficient to pay 100% of promised benefits. In fact, they’re projected to be enough to pay only 76% of promised benefits. Unless, the law is changed, that’s all retirees will get: 76%. Some promise, huh!
Another key date that’s deteriorating is the year the Fund stops growing. Taxes and interest grow the Trust Fund, building up a needed surplus to deal with a substantial projected increase in promised benefits. The Fund is projected to switch from growth to erosion in 2016, one year earlier than last year’s projection.
There’s lots of reasons for this deterioration—greater unemployment, slower growth in wages, low interest income on the Treasury bonds comprising Trust Fund’s assets. But at least the Trust Fund hasn’t been decimated by last year’s poor stock market performance. There ain’t no stocks in the Fund.
Clearly all our political leaders need to agree to resolve the solvency of the Trust Fund. Even if the solution ultimately favored by the majority is not their favorite solution, at least they should agree that some early action is better than inaction. It is manifestly unfair for future retirees to see their “promised” benefits shaved when they (we) have been cheerfully—or at least dutifully—supporting current retirees with our payroll taxes.
What are your favorite solutions to the actuarial shortfall? I've previously bloviated as to my own favorite fix, in January 11's post. I've shown you mine; you show me yours.
Thursday, May 14, 2009
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If I understand correctly, the government has been skimming "surplus" contributions off the SS fund for decades. That was fine as long as they were taking in more money than they needed to pay out. Now that the situation is about to be reversed, the government should "pay back" what they have taken. SS would not really be going bankrupt if the government did not choose to use it as a piggy bank. A similar problem was created in NJ (my state), notably under Governor Whitman, when we skimmed money from the state pension fund in order to spend without raising taxes. Now that debt is haunting us.
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