Worries about Social Security retirement benefits someday running out are not new. The first fearful stories of the Social Security system becoming depleted probably started soon after Ida Mae Fuller, the first recipient of a Social Security payment in the United States, received her first retirement check in 1940.
Social Security System Surplus
Annually, the trustees of the Social Security program report their estimates of the program’s continued viability to Congress via The OASDI Trustees Report. Along with this financial data, the trustees also include their recommendations on actions necessary to keep the program actuarially balanced through a 75-year period. According to The 2008 OASDI Trustees Report, Social Security trust fund assets are projected to increase to approximately $4.3 billion by 2017. This balance is approximately 385% of the expected annual program expenditures for that same year. A system that is steadily acquiring assets faster than it pays them out certainly does not appear to be going bankrupt, at least not in the short term.
Social Security Spending Needs Will Increase
The trustees also report that baby boomers will have a devastating impact on the trust fund surplus, beginning after 2017. As more baby boomers enter retirement age and begin applying for Social Security benefits, this large segment of the population will begin spending trust fund assets faster than the program acquires income. Using intermediate level cost assumptions, the OASDI Trustees Report anticipates that Social Security program costs will gradually increase between 2010 and 2030 as more baby boomers reach retirement age and begin collecting Social Security benefits.
Depleting the Social Security Surplus
Beyond 2030, the trustees indicate that costs will continue to increase, but at a slower rate due to increases in longevity and decreased post-baby boom fertility rates. In 2017, program costs will begin to exceed program income and start to spend down the Treasury fund obligations that make up the trust fund surplus until it is exhausted in 2041. If the trustees’ cost estimates are accurate and no Social Security changes are implemented by Congress, the system will be unable to pay the full amount of promised benefits at that point in time.
Social Security Changes Recommended
Many variables affect the future solvency of the Social Security system. If program costs are significantly higher or lower than anticipated, the timeframe for trust fund depletion will be correspondingly shorter or longer. Another factor often overlooked is the ultimate source of funding for Social Security – the United States government. Even if the Social Security surplus was depleted, the government could still make promised payments using general revenue funds. However, this approach would increase the federal deficit and is not a desirable long-term strategy. As an alternative, the program trustees recommend increasing payroll taxes and decreasing benefit amounts to keep the current Social Security system funded for at least another 75 years.
Regardless of what Social Security changes eventually emerge, concerns over the program’s viability have had a positive effect on baby boomers. As this demographic approaches their retirement years, they are paying more attention to the role Social Security plays in their individual retirement plans, and they are taking actions to save more money on their own to support their retirement income needs. Social Security was never intended to be a complete source of retirement income; rather it was intended and still is an important supplement to other sources of income.
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