Just three days ago, the Social Security Board of Trustees released their annual report.
Let’s take a look at their projections and some global comparisons.
Social Security Projections and Comparisons
For Social Security, the basic numbers to remember are 66 million, $1,232 trillion, and 181 million. With 66 million individuals receiving $1,232 trillion in benefits, Social Security has close to 181 million people providing payroll tax funding.
We can start with the Social Security Trust Fund. Knowing that the revenue from current workers might not be enough for current beneficiaries, the Congress buoyed the trust fund in 1983. Replenished whenever the System’s income exceeds its expenses, the trust fund is the back-up. And happily, it has been there for the extra money we’ve needed since 2021. However, if all continues as the Trustees predict, little by little, the trust fund will shrink until 2034 when it will be empty. Having inadequate income, the System’s payout would have to be 80% of “scheduled benefits.”
Then, moving our time horizon further ahead, we see the deficits increase. Over the next 75 years, the projected shortfall will ascend from last year’s 3.42% projection to this year’s revised 3.61%.
More generally, we can predict our declining fertility rate will produce fewer babies that will grow up to fund Social Security. On the spending side, we have more baby boomer retirees that will be living longer. One happy note is the immigration that will add to payroll revenue.
When we look at the world, it does not get any better. With Iceland at the top and Thailand at the bottom, the Global Pension Index gave the U.S. a C+ grade. Iceland, the Netherlands, and Denmark were the only countries that received an “A.” Then Israel, Finland, Australia and Norway were next, each with a B+.
At #20 out of 44 countries, the United States’s C+ was based on an Adequacy, Sustainability, and Integrity score. Its 67.5 for Adequacy indicated the system was insufficiently funded. Correspondingly, the 61.2 for Sustainability reflected the system’s demography, assets, and debt. Then, the 61.7 Integrity grade focused on governance-related issues. Together they wound up as a C+ and a middling position in the world’s pensions.
Our Bottom Line: the 1983 Lesson
Looking back to 1983, we can feel some hope. Somewhat like now, we were worried about Social Security’s resilience. Also like now, the Social Security Trust Fund was shrinking. The basic question was how to move forward when the political environment for benefit cuts or tax increases was hostile. However, a divided government did negotiate a fix.
President Reagan at first appointed a 17-member commission that was chaired by Alan Greenspan (soon-to-be Fed Chair). When they were unsuccessful, the President reduced the number to 9 and eliminated the hardliners from both sides. Privately bargaining, they figured out a compromise that cut benefits, raised taxes, and was described as a “win” for everyone. Of course there was so much more maneuvering including two opposing lawmakers called Pickle and Pepper but they demonstrated that it could be done.
My sources and more: Do take a look at the Trustees Report summary and then the 276 page report. Then, for the international comparison, the Mercer CFA Institute Global Pension 2022 Report has the details. Meanwhile this article described how a divided government came together in 1983 and this one focused on how immigration could solve Social Security problems as did sections of the Trustees Report.