Hear that sucking sound. It’s the rush of dollars coming out of the Social Security trust fund; you know, the fund set up to help retirees, the fund that’s been in trouble for years, the one the federal government has kicked down the road for decades. Yep, that one. Well, according to the latest annual Trustees Report, Social Security will only be able to pay full benefits through 2033, which is a year earlier than predicted in last year’s report.
According to the report, beginning in 2034, all money in the Old-Age and Survivor Insurance Trust fund will be gone and there will only be enough revenue coming in from Social Security payroll taxes to pay 76% of projected benefits.
Factors involved in all this gloom and doom include declining employment numbers as Baby Boomers retire, low earnings and interest rates, increasing immigration, and declining birth rates. Currently, there are 2.7 workers for each Social Security recipient and the forecast is 2.2 workers by 2040 and 1.5 workers by 2080.
Interestingly, the Trustees Report says the Covid pandemic won’t have much of an effect on the assumptions. Trust fund reserves totaled $2.9 trillion at the end of 2020, which was actually $11 billion more than the previous year.
So, what’s the government to do? One option is combining the Disability Insurance Trust Fund, which pays Social Security disability benefits, with the Old-Age and Survivors Insurance Trust Fund, which pays Social Security benefits. If the two are rolled into one, Social Security payroll tax revenue will be able to cover 91% of benefits beginning in 2034, rather than the projected 76%.
Other fixes being talked about include raising the maximum Social Security full retirement age (FRA) to 70 from its current level of 67. Another possibility is removing the Social Security payroll tax cap. If you earn more than the annual limit, which increases every year, you pay no FICA payroll taxes on income above that amount. In 2021, the threshold is $142,800. If the cap is removed, Social Security payroll taxes will be paid on everything you earn, no matter how much that is. Still another option is cutting Social Security benefits.
In my opinion, there is one other option to fix the Social Security system. In fact, it may be the quickest and most effective method, even though no one in Washington is talking about it. Eliminate the pensions and retirement plans of all federal senators and congressmen and put THEM into the Social Security system, just like the people they represent. Then, I believe we’d see problem-solving at its best.