The Social Security trust fund reserves are used to pay benefits whenever program costs exceed current tax income. The finances of the trust funds are largely unchanged from last year, according to the 73rd annual Social Security Board of Trustees' report. Here’s what you need to know about the health of the Social Security trust funds:
They’re still growing. The Social Security trustees project that the Old Age and Survivor's Insurance and Disability Insurance trust funds are expected to grow over the next several years from $2,732 billion at the beginning of 2013 to $2,922 billion in early 2021. However, beginning in 2021, program costs are expected to begin exceeding tax income, and the reserves are expected to decline to $2,866 billion by 2023.
There’s a long-term projected deficit. The OASDI trust funds are projected to be exhausted in 2033, the same year forcasted in last year’s report. “The projections in this year's report for Social Security are essentially unchanged from last year, and those for Medicare have improved modestly,” says Treasury Secretary Jacob Lew. The Old Age and Survivor's Insurance trust fund is projected to last until 2035, while the Disability Insurance trust fund is expected to be depleted in 2016.
Benefit payments won’t stop if the trust funds are depleted. Once the trust funds are exhausted, incoming tax revenue will be used to pay out current benefits. “Three-fourths of benefits would still be payable after depletion,” says Carolyn Colvin, Acting Commissioner of Social Security. The trustees project there will be enough tax revenue coming in after 2033 to pay out 77 percent of scheduled benefits.
Potential fixes could correct the problem. Congress could enact changes that would insure the long-term fiscal health of the program. For example, an immediate payroll tax increase of 1.33 percent for both workers and employers would restore the program to solvency for the next 75 years, as would an immediate benefit cut of 16.5 percent for all current and future beneficiaries or a 19.8 percent benefit reduction for everyone who becomes eligible for benefits in 2013 or later. Some combination of these two approaches could also be used to correct the problem.
The necessary tax increases and benefit cuts get larger the longer we wait to implement them. “It’s getting very late in the game to deal with Social Security’s finances in a realistic way,” says Charles Blahous, a public trustee. “The window of opportunity to deal realistically with Social Security closes well before the early 2030s.”