Social Security's Office of Chief Actuary has released the first quarter numbers on the operation of the Disability Insurance Trust Fund. These numbers are crucial because the Chief Actuary's prediction is that the Disability Insurance Trust Fund will run out of money at the end of 2016.
The Disability Insurance Trust Fund finished the first quarter of 2015 with $54.3 billion in U.S. government bonds. This was down $5.9 billion from the end of 2014. The Disability Insurance Trust Fund had lost $6.4 billion in the first quarter of 2014.
There's no question that the Disability Insurance Trust Fund is doing somewhat better as time goes along. That's inevitable since the number of people drawing Social Security disability benefits is declining and the economy is growing. However, there's little doubt that the Disability Insurance Trust Fund will run out of money in the not too distant future. Because of the modest improvements in Trust Fund operations, I'd say that, absent some unexpected change, the exhaustion date is likely to be in the first half of 2017, perhaps around the end of the first quarter.
Benefits do not stop if the Disability Insurance Trust Fund runs of money. There would still be enough income to pay at least 80% of benefits. However, it would be a chaotic situation with benefits reduced by varying amounts each month since trust fund income varies significantly from month to month. Some older beneficiaries would be shifted into retirement benefits since they're entitled to whichever is higher. That would reduce the draw down on the Disability Insurance Trust Fund but be an accounting nightmare.
5 comments:
Charles, I don't understand the comment "Some older beneficiaries would be shifted into retirement benefits". Right now, when a person getting social security disability attains Full Retirement Age, the check is re-named "retirement" by SSA. Most likely, it then is paid from the retirement funds.
A disability check would always be higher than a retirement check for the same person, assuming no earnings after Established Onset Date (EOD), because it is figured as if the person suddenly became Full Retirement Age. The EOD puts an end-point to the calculation period -- so when SSA calculates the benefit, fewer years are used in figuring the Average Monthly Wage for the PIA. And, the years of zero earnings after EOD aren't counted -- but they would be if SSA were doing a retirement calculation (minus 5 low years, of course).
It wouldn't be higher than retirement if DI had a 19% benefit cut.
Let's say you're 65 years old when the trust fund becomes insolvent. You'd been getting $1000 a month in DI but now you're getting $810. If you switched to early retirement, you'd get $933 instead. It would come from the OAS trust fund, which wouldn't be insolvent and would pay full benefits.
over 30% of SSDI recipients are over age 60. Not all of them will qualify for this switch, but some will.
@ 10:16
Even if they would qualify...it wouldn't make sense for a lot of them. Rather, they would be better off waiting until 65/66 for full retirement age benefits.
If you need to pay your rent now, then you don't have the luxury of waiting til you hit full retirement age. Plus, if your early retirement amount is greater than your insolvent-trustfund DI amount, you may be switched automatically (and then moved to the full amount at full retirement? we've never had that situation so I don't know).
Also, waiting until full retirement age, or even age 70, is a good idea for people who are going to live a long time. People in their early/mid 60s who get DI are not all in this category. 1 in 5 men and almost 1 in 6 women who start getting DI die in the first 5 years of eligibility, and many die within a couple months or even within the 5-month wait for benefits (think stroke, stage 4 cancer, bad car accident, etc.). Taking early retirement rather than skimping with a 19% benefit reduction may make good sense for some DI recipients.
These national insurance schemes are put in place to benefit people and I don't think that there's anything wrong in that. Perhaps they just need to be a bit more stringent on how money leaks out of the fund?
Post a Comment