THINKING RETIREMENT – ANDY LANDIS-The Social Security Board of Trustees recently released its Annual Report to Congress on Social Security’s long-term finances.  Minus the hype, the report is both significant and surprising.  Here’s Q&A on the latest findings.

I keep hearing that Social Security is about to go broke.  What do the numbers show?

The Trustees’ Report presents these data:

  • Social Security has $2.73 Trillion in trust fund reserves.
  • Social Security reserves are still growing and will continue to grow through 2020.
  • Beginning in 2021, program costs are projected to exceed income, shrinking the trust funds.
  • The trust funds will be exhausted in 2033, the same year projected in the 2012 report.
  • After 2033, income will cover 77% of scheduled payments.

That can’t be right.  I’ve heard that Social Security has been losing money since 2010.

Read the fine print.  Starting in 2010, Social Security expenses exceeded “non-interest” income—primarily payroll taxes. But that ignores the interest Social Security earns on invested funds.  If you take all income into account, Social Security had a surplus of $54 Billion in 2012 operations.

How much does Social Security waste in bureaucracy?

SSA’s operating overhead is 0.8% of total expenditures, about the same as a discount mutual fund, and that includes Medicare.  It’s been a fraction of 1% for decades.

What about the 2% payroll tax “holiday”?  Didn’t that further erode Social Security finances?

No.  During the “holiday” in 2011 and 2012, government made up the missing income with direct grants from general revenues.  It was the first time SSA was not self-funded and depended on government money.  Grants have stopped now that the “holiday” has ended.

Is this Social Security’s worst financial report ever?

Far from it.  In the late 1970s and early 1980s Social Security ran deficits.  Trust fund insolvency loomed in July 1983.  With mere months of solvency left, Congress acted to bolster finances on April 20, 1983.  SSA still operates under the 1983 funding arrangement, generating surpluses every year since. 

Can we trust the Trustees’ Report?

Their track record is good.  For example, the aim in 1983 was for 50 years of solvency.  That would be 2033, so we’re roughly on track 30 years later.  In subsequent Trustees’ Reports the insolvency date varied slightly between the early 2030s and the early 2040s.

Who are the Social Security Trustees?

There are six trustees.  Four are senior government officials:  The Secretary of the Treasury, the Acting Commissioner of SSA, the Secretary of Health and Human Services, and the Acting Secretary of Labor.  Two are public trustees:  Charles P. Blahous III Ph.D. and Robert D. Reischauer Ph.D.  Dr. Blahous is a Stanford economist who served in the George W. Bush administration.  Dr. Reischauer is a Harvard economist and the former president of the Urban Institute.

Isn’t the Social Security Trust Fund a fiction?  I heard the government stole all the money and spent it, so there’s nothing there but worthless IOUs.

It’s real money, invested safely and earning interest, and can’t be used for any other purpose.

SSA has always been required to invest its surpluses in only one security:  U.S. Treasury bonds.  Any bond is essentially an IOU, so it’s true that the trust fund holds only IOUs.

It’s also true that the government spent the cash in the fund, just as any bond seller would.  But of course it repays the principal and interest regularly, just like all other Treasury bonds.

As to the bonds being “worthless,” they are the safest investment in the world, and the government has never missed a payment.  (The author would be happy to relieve the reader of any U.S. Treasury bonds thought to be worthless.)

What can be done to strengthen Social Security’s long-term financing?

With only a 23% shortfall starting in 20 years, it’s not too difficult to balance SSA’s finances.  There are dozens of proposals, basically boiling down to cutting expenses and/or increasing revenue.

Examples of cutting expenses include across-the-board payment cuts, payment cuts targeted to higher-income beneficiaries or family members like spouses and children, and raising the retirement age.

Examples of increasing revenue include raising the payroll tax rate, raising the taxable earning ceiling for higher-income workers, and applying income tax to more Social Security payments.

1983 offers guidance. Both payment cuts and revenue increases were employed to gain 50 years of projected solvency.  Cuts included reducing the payment formula and eliminating some classes of payments.  Revenue increases included raising both the payroll tax rate and the earnings ceiling, applying income tax to benefits, and bringing federal employees under Social Security.

Hundreds of proposals are analyzed HERE. []

Why doesn’t Congress fix it?

The numbers are fairly easy.  Getting a majority of Congress behind a single plan is hard.  And while something clearly must be done before 2033, it’s not an immediate crisis.

Can we have confidence in Social Security?

The author is confident that Congress will strengthen Social Security, for two reasons.  One, it’s extremely popular politically, possibly the most popular government program of all.  Two, it’s the least expensive way to provide financial security to a large population, which is why there are over 100 Social Security systems around the world.

Remember 1983.  With only months of solvency, Congress finally acted.

Where can I learn more?

A highly readable press release is HERE. []  A longer discussion (based on 2011 data) can be found in MY BOOK. []  The Summary Trustees’ Report can be found at, with the complete report at

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