Submitted by Brenton Smith, this article originally appeared in NewsMax.Com, (“No Way Around Sorry Shape Social Security Is In ”)
No Way Around Sorry Shape Social Security Is In
So you think you are worried about Social Security?
Many are, but their fear is generally misplaced. At this point, fear is pretty much limited to falling benefit levels as a result of Congressional inaction. As I am sure that you have heard, seniors’ paychecks will fall by 23 percent if Congress does nothing starting in 2034.
It's possible, and poses a concern. That warning is, however, far from the most substantive worry about the program. If Social Security can follow the status quo over the path of the trustees’ forecast for the program, it is a pretty mild outcome. That result means that the program has outlasted every major forecast outside of the trustees for the program. The Congressional Budget Office (CBO) for example expects the pain to start as early as 2029. Moreover, that performance will mean that the government was able to refinance or repay the trillions of dollars held by the Social Security Trust Fund without creating any major economic disruption.
If you want to know what makes people worry, here are four facts to make you lose your sleep whatever your age:
1. The Social Security Shortfall Is Growing Three Times Faster Than the US Economy.
The imbalance of Social Security is measured by its shortfall, or the amount of money, that with interest earned, would enable the program to pay benefits over the next 75 years. That hole in the program’s finances is growing at three times the rate of our ability to fill it.
Here are the numbers. Over the past 15 years, the system’s liabilities have grown at 9.6 percent compounded annually, while the trustees expect that even in a robust year real economic growth will not break 3 percent. Moreover, the trustees believe that the long-term growth rate of the economy is 2.1 percent. At the end of 2001, the Social Security shortfall was $3.157. At the end of 2016, it was $12.5 trillion. With the passage of yet another year of inaction on the program’s finances, the figure is more than $13 trillion.
2. People Turning 70 Today expect to Be Alive When Benefits are Reduced
If you think the problems of Social Security are limited to people under the age of 40 —think again. That assessment has not been a realistic concern in nearly two decades. The Social Security Administration believes that more than half of the people turning 70 today will be alive and well when the trust fund is exhausted.
The exhaustion of the trust fund means that benefits will be reduced to the level of revenue collected. At this point, the trustees of the Social Security Trust Funds believe that benefits will fall by 23 percent in 2034, with cuts rising over time. The CBO believes that the reductions will rise to 30 percent over time.
3. In 2016, the Program Lost More Money than It Collected
Over the course of 2016, the program’s unfunded liabilities rose by nearly $1.2 trillion. That is a breathtaking jump considering that the program only collected about $950 billion in revenue.
Mechanically, Social Security takes in money in exchange for the promise of future benefits. In the case of 2016, for every $1 that the program took in, the system generated more than $1.20 of promises that no one expects it to keep. In English, we could have reduced benefits to zero for the entire year of 2016, and the program would have finished the year in worse shape than it started.
4. Dependency on Social Security Rises with Age
Typically, worriers about Social Security say that Social Security accounts for 90 percent of the income of more than one-third of seniors. Politifact has largely confirmed this statistic.
While that information exposes a concern, it also conceals a much larger problem. That statistic lumps all seniors into a single category as though one senior is the same as the next. They aren’t. As beneficiaries age, many lose the capacity to work for income, requiring many to deplete retirement savings to fill in the gaps between benefits and the living expenses. So dependence on Social Security rises with age. In fact, the original report shows that dependency rises by more than 60 percent between the ages of 70 and 80. Assuming that the program will serve an older audience as Boomers age through the system, the importance of Social Security is apt to peak at the exact time that resources start to fall short.
Here is the really scary statistic: zero, which is the number of reports that look at the relative importance of Social Security for people in actual old-age. At this point, the numbers lump everyone who is 80 and older into a single category despite the fact that the life expectancy of a new retiree has risen into the mid-80s. The current figures do not even break-out modest old-age.