Combined Social Security Trust Fund only 13 years away from insolvency, trustees report

The combined Social Security Trust Fund is only 13 years away from insolvency, according to the latest annual report published by its trustees, because of large, rising imbalances and deteriorating finances, among other factors. 

Created by FDR's New Deal, the Old-Age and Survivors Insurance (OASI) Trust Fund — the nation's largest social welfare program — will deplete its reserves by 2033, while the Social Security Disability Insurance (SSDI) trust fund will become insolvent by 2057. These two funds combined are expected to exhaust their reserves by 2034, when individuals currently age 54 will reach their full retirement age. Once the Social Security Trust Fund becomes insolvent, all beneficiaries would see their benefits cut by 22%, unless Congress implemented policy changes before then.

"Social Security cannot guarantee full benefits to current retirees under current law," warns fiscal policy watchdog group the Committee for a Responsible Federal Budget. 

As of Aug. 31, 2020, the OASDI program provided payments to roughly 65 million people, having substantially expanded beyond providing retirement benefits to those who paid into the system as it was first designed to do. In 2020, 49 million retired workers and dependents of retired workers received Social Security benefits, in addition to 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers. 

In April 2019, nearly a year before state shutdowns began last year, the trustees warned that Social Security's total costs would exceed its income in 2020 for the first time since 1982. Without policy changes, costs were expected to exceed income every year thereafter, they warned. 

Based on 2020 data, the trustees warned that Social Security's total cost "is projected to be higher than its total income in 2021 and all later years," running cash deficits of $2.4 trillion over the next decade.

While the program's total cost has exceeded its non-interest income since 2010, interest earnings bumped up total income to surpass total cost. In 2020, the total cost of Social Security was $1,107 billion, with a total income of $1,118 billion (comprised of $1,042 billion in non-interest income and $76 billion in interest earnings). 

While Social Security has generally accounted for the largest chunk of the federal budget, in 2020 income security payments exceeded Social Security payouts after the federal government began providing payments to states and individuals to offset losses due to state pandemic shutdowns imposed by governors. Over a course of nine months, the federal government provided weekly additional federal unemployment payments, in addition to direct cash payments in the form of stimulus checks. These payments were on top of federal retirement and disability payments, increased funding for food and nutrition payments, and rental payment assistance. States also received billions in federal bailouts through the CARES Act.

The federal government's emergency income security efforts totaled $1.3 trillion, or 19% of the budget in 2020, compared to Social Security's $1.1 trillion, or 17%. Meanwhile, the national debt has grown to almost $29 trillion, and the national deficit to $3.13 trillion, meaning the government spent more than it received in revenue as a result of less people working — lost workers who, combined with their employers, would have otherwise paid more in income and payroll taxes.

"Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward recovery by 2023," the report states, "with the level of worker productivity and thus GDP assumed to be permanently lowered by 1 percent. In addition, the pandemic and recession are assumed to lead to elevated mortality rates over the period 2020 through 2023 and delays in births and immigration in the near term. Taken together, these data and assumptions cause the reserve depletion date."

In 2020, more than half of the entire population in the United States — an estimated 175 million people — had their earnings covered by Social Security and paid payroll taxes on those earnings, the report states. 

But unfunded Social Security benefits — what the government owes and has not paid — adds another $41.2 trillion to the national debt, Chicago-based Truth in Accounting calculates in its annual analysis of the federal budget.

The national debt is around $123 trillion — more than four times what the Treasury Department reports — when accounting for factors like the amounts owed in unfunded Social Security and Medicare benefits, Truth in Accounting argues.

"The federal government argues that the massive unfunded obligations in Social Security should not be a liability on its balance sheet because the government controls the law, and can change it at any time," explained Bill Bergman, director of research at TIA. "On that reasoning, the government should stop including Social Security as a 'mandatory' program in the federal budget."

In response to fears that the program is going bankrupt, the Council for Retirement Security says Social Security "can't" and "won't" go bankrupt. Rather, "it's insolvent," says the group. "Insolvency is when a person or entity is unable to pay debts with incoming revenue. This might sound a whole lot like bankruptcy, but you can be insolvent long before you declare bankruptcy. Insolvency just means your income doesn't keep up with your debts and you're operating at a loss."