A modicum of good news came when the Trustees projected that Social Security costs will not exceed Social Security income until some time in 2020, which is a bit later than had been thought. At that point, the shortfall would be covered by drawing on the Social Security Trust Reserves, and the Trustees project that the Trust Reserves would be depleted in 2035. Upon depletion, Social Security payments would be reduced to a level of 80% instead of the current 100%. Key factors in the projected shortfall are the aging population and reduced birth rates in the US.
As a reminder, Social Security income includes employee and employer payroll taxes, the interest earned on these funds, and some additional income taxes. In the 84-year history of Social Security, income has totaled $21.9 trillion, and payments have totaled $19 trillion, leaving a reserve of $2.9 trillion at the end of 2018.
In the annual report, the Trustees offer several recommendations to lawmakers, noting that early actions on these issues would allow the Social Security administration to consider a broader range of solutions and provide more time for future Social Security recipients to adjust to the new realities.
In brief form, here are the Trustees’ recommendations to congress:
• Raise payroll taxes – recommendation is a 2.7% increase
• Eliminate the ceiling that now exists on wages subject to taxes.
• Raise the full benefit retirement age beyond the current scheduled age of 67.
• Reduce future benefits….(admittedly, an unpopular choice.)
• Change the formula used to calculate benefits.
• Change the annual cost-of-living adjustment.
All of these are options for shoring up Social Security, many of which have been proposed, discussed and analyzed at some length. The key is that lawmakers must act, or these remain only recommendations – not solutions.