Social Security’s challenges continue to be modest and manageable
Every year since 1941, the Social Security Trustees have issued a report on the long-term financial outlook of Social Security. The 2013 report is out today, along with the Medicare trustees report. The Social Security trust fund reserves increased by $54.4 billion in 2012, and this year’s surplus is projected to be $28 billion. Social Security will continue to run a surplus through the end of the decade, with the trust fund growing from $2.76 trillion in 2013 to a peak of $2.92 trillion in 2020.
Beginning in 2021, Social Security will begin drawing down the trust fund to provide a cushion to help pay for the Baby Boom retirement. This was anticipated. The trust fund was never meant to grow indefinitely and its drawdown should not be cause for concern, though the recession and weak recovery have accelerated the process.
If no policy changes are made to Social Security, the trust fund will reach exhaustion in 2033, unchanged from last year’s report. (See this interesting blog from CBPP looking at how trust fund exhaustion dates have fluctuated since 2000 due to demographic and economic uncertainties; note that the exhaustion date was the same in 2000 as it was during the recession in 2009.) Even in the unlikely event that nothing is done to prevent automatic benefit cuts when the trust fund runs out, Social Security would still be able to pay out 77 percent of promised benefits to recipients. Modest increases in revenue, however, could keep Social Security paying out full benefits for the foreseeable future. Even without any changes, Social Security will be able to keep paying full benefits for another two decades. So there is absolutely no reason why any action or “grand bargain” including Social Security reform must happen now, especially with a dysfunctional Congress.
The projected shortfall over the long-term outlook—75 years—is 2.72 percent of taxable payroll, 0.05 percentage points higher than in last year’s report. This small adjustment is due to changes in marginal income tax rates that lowered projected revenue from the taxation of benefits, changes in demographic data and assumptions, and the changing valuation period (one less surplus year), among other things.
In a nutshell, the report shows that little has changed for Social Security’s long-run outlook between this year and last. Those who will most certainly make a fuss over the program’s finances and try to force debate on cutting benefits now will surely continue to try to shake the confidence of the institution. However, this report provides further evidence that Social Security’s challenges are modest and manageable, that Social Security is not in any state of crisis, and that changes on the revenue side would put the program back into long-term balance.