The Social Security Board of Trustees today released its annual report on the financial health of the Social Security Trust Funds. The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2036, one year sooner than projected last year. The DI Trust Fund, while unchanged from last year, will be exhausted in 2018 and legislative action will be needed soon. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994. The Trustees also project that OASDI program costs will exceed non-interest income in 2011 and will remain higher throughout the remainder of the 75-year period.
In the 2011 Annual Report to Congress, the Trustees announced:
The projected point at which the combined Trust Funds will be exhausted comes in 2036 -- one year sooner than projected last year. At that time, there will be sufficient non-interest income coming in to pay about 77 percent of scheduled benefits.
The point at which non-interest income fell below program costs was 2010. Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.
The projected actuarial deficit over the 75-year long-range period is 2.22 percent of taxable payroll -- 0.30 percentage point larger than in last year’s report.
Over the 75-year period, the Trust Funds would require additional revenue equivalent to $6.5 trillion in present value dollars to pay all scheduled benefits.
“The current Trustees Report again reflects what we have long known to be true -- we need changes to ensure the long-term solvency of Social Security and to restore younger workers' confidence in the program,” said Michael J. Astrue, Commissioner of Social Security. “The report also highlights the more near-term shortfall in the Disability Insurance Trust Fund. Our disability programs are complex, and there is a long history of well intended ‘reforms’ causing unintended consequences. The President sent to Congress our Work Incentive Simplification Proposal, which would be a good start for bipartisan debate. I urge the House and Senate to review this proposed legislation carefully and schedule hearings this year.”
Other highlights of the Trustees Report include:
Income including interest to the combined OASDI Trust Funds amounted to $781 billion ($637 billion in net contributions, $24 billion from taxation of benefits, $117 billion in interest, and $2 billion in reimbursements from the General Fund of the Treasury) in 2010.
Total expenditures from the combined OASDI Trust Funds amounted to $713 billion in 2010.
The assets of the combined OASDI Trust Funds increased by $69 billion in 2010 to a total of $2.6 trillion.
During 2010, an estimated 157 million people had earnings covered by Social Security and paid payroll taxes.
Social Security paid benefits of $702 billion in calendar year 2010. There were about 54 million beneficiaries at the end of the calendar year.
The cost of $6.5 billion to administer the program in 2010 was a very low 0.9 percent of total expenditures.
The combined Trust Fund assets earned interest at an effective annual rate of 4.6 percent in 2010.
The Board of Trustees is comprised of six members. Four serve by virtue of their positions with the federal government: Timothy F. Geithner, Secretary of the Treasury and Managing Trustee; Michael J. Astrue, Commissioner of Social Security; Kathleen Sebelius, Secretary of Health and Human Services; and Hilda L. Solis, Secretary of Labor. The two public trustees are Charles P. Blahous, III and Robert D. Reischauer.
The 2011 Trustees Report will be posted at www.socialsecurity.gov/OACT/TR/2011/ by Friday afternoon.
May 13, 2011
The Sky Is Falling
A press release from Social Security:
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7 comments:
Interest credited to the fund is not in the form of cash, but in additional Treasury debt.
That is why when the outgo exceeded the income, not including interest, the bonds (interest) had to be redeemed in cash.
This redemption, due to the deficit, was paid by issuing more debt held by the public.
When the outgo exceeds income, including interest, the principal bonds will be redeemed the same way.
The entire trust fund is pay-as-you-go. Tapping it means having to raise new money.
Don Levit
As long as the economy continues to stagnate under obama, fica revenues will continue to fall short of what is needed to replenish the trust funds. long-term prognosis looks worse and worse.
Let's worry about our real problems and not what might happen 25 years from now. The unemployment rate now is too high, and medical costs are very high and rising. Social Security is fine for now, and can be easily "fixed" if and when that becomes necessary.
Mike:
How can Social Security be fixed if the trust fund simply represents a draw on the Treasury?
As long as we have deficits, the draw on the draw on the Treasury will be additional debt held by the public.
"Fixing" Social Security, ala 1983 simply continues the draw on the Treasury by making the trust fund larger, but provides no liquidity to pay beneficiaries, without raising new money.
How would you like your retirement plan, in order to pay you benefits from its trust fund, have to raise new money, instead of liquidating pre-funded assets?
I hope you're not a federal employee, for that is how its trust fund is "funded," just like the SS trust fund.
Don Levit
Don,
I don't get your point. Social Security is funded by payroll taxes. If the projections are correct, it might be necessary to gradually and modestly increase these taxes to pay scheduled benefits. To the extent the trust fund is drawn on, these increases can be delayed, but that's a detail.
The projected increase in medical care costs is much larger than the revenue needed to "fix" Social Security, but that money goes mostly to the wealthy, so it's not a problem to the people who run the country.
Mike:
I agree that Medicare is the more serious long-term funding problem.
Its trust fund works similarly to that of SS.
When you say that SS is funded by payroll taxes, it is to the extent that the payroll taxes are needed to pay current beneficiaries.
The excess payroll taxes have been lent to the Treasury to pay current expenses. The same is done with the interest, although the interest is not in the form of dollars as the excess payroll taxes, but is in the form of debt. Thus, the entire trust fund is nothing but numbers, which represent a draw on the Treasury. Unlike a typical reserve or trust fund, which is simply liquidated to pay benefits, new money must be raised when the SS or Medicare Trust Funds are tapped.
I can cite a link and excerpt from the Social Security Advisory Board supporting my statements, if you or others want to read them.
Don Levit
Don,
I too fail to see your point. The trust fund, and the interest on the principle held in the trust fund, are real assets to Social Security. We all know that the govt in general is running deficits and borrowing money like crazy, yet you point out that to access the money in our trust fund the govt would have to borrow. So what else is new? These are legal obligations the govt has to Social Security and when Social Security needs the money, like it does now with some of the interest, the govt will either have to borrow to pay it, or actually balance its budget and include these expenditures (not likely). Borrowing is how lots of govt operations have been funded for a long time.
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