Is Social Security at Risk of Running Out of Funds?

Every now and again, you might hear a news story or a politician talking about the Social Security program and how it’s going to run out of money soon. Sometimes, pundits will make the claim that Social Security is draining resources from the government (which is patently untrue—Social Security is funded by a payroll deduction that’s completely separate from your income taxes).

However, as more and more “baby boomers” enter retirement and start collecting the benefits which they’re owed, the ratio of workers paying into Social Security to the number of people collecting benefits is expected to shrink. With more people collecting benefits and fewer workers contributing to the program, Social Security could start to lose money.

Is Social Security Running Out of Money?

According to the 2016 Social Security Board of Trustees Report, “the asset reserves of the OASI Trust Fund, together with continuing program income, will be adequate to cover program costs over the next 10 years.”

However, another passage from the report overview notes that trust funds will “decline steadily until the trust fund reserves become depleted in the third quarter of 2023.” Note that this is just for the Disability Insurance Trust Fund; the general Social Security Trust Fund reserves are projected to “become depleted in 2034.”

Basically, Social Security isn’t taking in enough money to cover all of its expenses and the payouts it has to make. It’s important to note that the projection in the report is an estimate—it will only come to pass if things keep going exactly as they are.

How Will the Depletion of the Trust Fund Affect My Disability Benefits?

If the disability trust fund runs out of reserve assets, it will have to rely solely on the continuing income being directed to the program. According to the Board of Trustees report, “at the time reserves become depleted, continuing income to the DI Trust Fund would be sufficient to pay 89 percent of scheduled DI benefits.”

In short, if the Disability Insurance Trust Fund runs out of money in 2023, the Social Security Administration would be able to keep paying the majority of benefits using ongoing Social Security payroll deductions—at least for a while.

This would mean that some benefits could be reduced, or cut off entirely because of a lack of funds.

What Can Be Done About This?

To keep Social Security solvent so that you can receive benefits if/when you need them, action needs to be taken soon. The challenge is finding the best course of action to take.

To ensure that Social Security can remain solvent, we need to find ways to add more funds to the trust and reduce spending. The longer it takes to achieve these goals, the more drastic the solution will have to be.

Some solutions that have been suggested include (but are not limited to):

• Increasing the Full Retirement Age (FRA). With average lifespans increasing, some have suggested increasing the FRA so that longer-lived recipients don’t collect as much total Social Security retirement income. However, this could mean that many workers with shorter-than-average lifespans may never see a dime of their retirement benefits.
• Increasing the Payroll Tax Earnings Cap. The payroll tax earnings cap for 2015 and 2016 was $118,500. Any earnings beyond this amount are not taxable for Social Security. By increasing or removing this cap, Social Security could increase its income. Data cited by the Center for Economic and Policy Research shows that about 6.1% of all American workers earn more than the current cap.
• Reducing Average Benefit Payouts. This is one of the less popular ideas to curtail spending. Reducing benefit amounts could help keep the Social Security Trust Fund solvent, but it could reduce the program’s effectiveness at helping old-age or disabled persons survive when they cannot work.
• Increasing the Payroll Tax Rate. Currently, the payroll tax for Social Security is 6.2% for the employee, which is matched by employers for a total 12.4% tax rate. By increasing the tax rate by just 2% over the next few years, Social Security could be made solvent for the next 75 years—assuming benefits don’t increase. The great thing here is that the impact won’t be much for most individuals—but businesses may feel a sharper sting.
• Creating More Strenuous Fraud Checks. Some have suggested implementing stricter anti-fraud measures in the disability insurance and retirement programs. However, the resources needed to do so could easily end up outweighing the savings in fraudulent Social Security payments.

These are just a few of the potential fixes, and implementing any of them will take a considerable amount of work. But, it’s important that action is taken sooner rather than later. If fixes to the Social Security system are put off until the reserves of the different trust funds are depleted, then it will be more difficult to fix the problem.

If you’re worried about the future of the Social Security program because you or a loved one may need benefits, reach out to your state representatives and urge them to take decisive action now. This is an issue that will affect future generations, but that doesn’t mean we should leave it all up to them to deal with!