Today’s release of the 2014 Social Security Trustees Report shows its programs’ finances are in dire need of reform if the programs are to provide to seniors and the disabled protection from poverty and do so in an affordable and sustainable manner.
Social Security paid out nearly $71 billion more to retirees and other beneficiaries than it collected in tax revenue in 2013. This is the fourth straight year the retirement and disability programs are running cash-flow deficits, as highlighted in today’s trustee report.
Deficits are only growing worse. The trustees project $80 billion in deficits in 2014, which will more than double before the end of the decade. At $110 billion in average annual deficits throughout the next decade, the combined programs are facing more than a trillion dollars in deficits just over the next 10 years.
Social Security’s reported long-term (through the end of 2088) unfunded obligation of $10.6 trillion is further exacerbated by the $2.8 trillion in IOUs in the old-age security (OAS) and disability insurance (DI) trust funds.
Since the trust funds hold no economic assets, but treasury securities which have to be financed through tax increases, borrowing, or by making other spending cuts to pay scheduled benefits, Social Security’s actual long-term unfunded obligations total $13.4 trillion.
This means that Social Security’s unfunded obligation rose by $1.1 trillion compared to last year, when it was projected at $12.3 trillion.
About 47 million people receive benefit payments from Social Security’s retirement program and about 11 million people receive payments from the disability insurance program. When each respective trust fund becomes exhausted, beneficiaries face automatic benefit cuts.
The DI trust fund is projected to be exhausted by the end of 2016, threatening its beneficiaries with a 19 percent benefit cut. This would bring the average DI benefit payment to below the federal poverty level. Congress should make reforms to DI, which has increasingly become an early retirement and long-term unemployment program, to preserve it for the truly disabled while limiting unnecessary awards and enabling beneficiaries to return to work as they are able.
The retirement trust fund is projected to be exhausted by 2033, just as today’s newborns would go off to college. Waiting until then to make reforms would be a big mistake, however, as any changes to benefits or taxes would be much more severe than if Congress acted sooner.
Reforms are urgent today to strengthen benefits for Social Security’s most vulnerable populations without burdening younger working generations with a higher debt and tax burden. Lawmakers should immediately replace the current COLA adjustment with the more accurate chained CPI, raise the early and full-retirement ages gradually and index both to changes in longevity, and focus Social Security benefits on those who need them most.