Why We Should Worry About Social Security

Yesterday, the Social Security trustees released their annual report. Again, they tell us that “the Social Security and Medicare programs both continue to face significant financing issues.” With Social Security, the worries are it’s Old Age, Survivors, and Disability insurance (OASI and DI) while their Medicare concerns relate to Hospital Insurance (HI) and Supplementary Medical Insurance (SMI).

Today, let’s take a look the plight of Social Security retirees.

Social Security Worries

The Trustees

First we should know that the Secretaries of the Treasury, Labor, and Health and Human Services are the three Cabinet members that, as trustees, make the program’s decisions. Then, in addition to the Commissioner of Social Security, there are two Public Trustees positions that have been vacant since 2015.

The Benefits

Next, 2033 is the year to remember. As the last year that the program can afford paying full benefits, 2033 is a year or two sooner (depending on legislation) than the 2024 report predicted. In just eight years, benefits will shrink to 77%.

We have to wait for 2081 for the numbers to improve:

Funding

Funding for the 60.1 million people that receive OASI benefits comes from payroll taxes, an income tax on Social Security benefits, and the interest from Trust fund reserves (that were invested in U.S. Treasury securities). Called pay-as-you-go, the payroll taxes come from the current labor force. Meanwhile, retirees pay the tax on their benefits, and the trust fund is the back-up. Loaded with surplus money since the early 1980s, the Social Security Trust Fund is there for any shortfalls.

However, since 2021, because OASDI total income has been smaller than its costs, we’ve been digging into the Trust Fund. With its depletion continuing, the Trust Fund will be insolvent in 2033. No longer there to assure full benefits, an insolvent Trust fund means that beneficiaries will receive less.

With reserves becoming an increasingly smaller percent of annual cost, OASI takes the steepest dive:

Penn Wharton

In its budget model, Penn Wharton scholars predict how immigration policies increase our Social Security worries. Even though unauthorized immigrants will not become beneficiaries, they paid approximately $24 billion in Social Security taxes during 2024. As a result, the Penn Wharton three scenarios of deportation policies all accelerate Social Security Trust Fund deficits.

Our Bottom Line: Social Security Solvency

The United States has three big Social Security problems. We need relatively more workers and fewer older people.  But that probably won’t happen. We need people to retire later. But many workers are unable to wait. And we need more revenue. But no one wants higher taxes (although raising the wealthiest peoples’ taxes is the most popular policy solution).

My sources and more: For wisdom about the future of Social Security, we can look at their new report. From there, the Penn Wharton Model provides more insight. But I especially recommend this Washington Post article. Moving far beyond a summary of the Trustees Report, it has the insight and facts that provide a true grasp of Social Security’s future.

Please note that “our Bottom Line” was in a past econlife post.