Social Security is a critical retirement program that senior citizens simply couldn’t do without. An analysis from the Center on Budget and Policy Priorities from 2016 found that the mere presence of a Social Security benefit to tens of millions of retired workers keep more than 15 million of them above the federal poverty line each year.
However, despite Social Security’s importance, Americans have proven time and again how little they actually know about the program. In fact, the newly released, five-question, true-false, Social Security quiz from MassMututal found that nearly half of all seniors aged 50 and over failed its online test. Considering that we, as a country, are struggling with basic Social Security concepts, the following three hard-to-believe facts about Social Security might be an even tougher pill to swallow.
1. $1 trillion in annual income simply isn’t enough
Possibly the biggest Social Security eye-opener is that in spite of the program being on pace to collect just over $1 trillion in revenue this year, that still won’t be enough to cover what it’s expected to pay out in benefits in 2018 or any year thereafter, based on the current payout schedule.
According to the Social Security Board of Trustees’ 2018 report, the program is expected to pay out $1.7 billion more in benefits than it generates in revenue this year, $0.2 billion more in 2019, and then run a progressively larger deficit with each passing year, at least through 2027. The report suggests that by 2034, Social Security will have completely exhausted its reserves, resulting in the need for a 21% across-the-board reduction in benefits.
If there’s some good news here for seniors, it’s that Social Security itself isn’t going bankrupt. Even with an unsustainable payout schedule that could wipe out its asset reserves, Social Security will continue to generate the bulk of its revenue from its 12.4% payroll tax on wage income of up to $128,400, as of 2018. As long as the American public keeps working, this tax will continue to be collected, providing funding that the Social Security Administration can use to disburse to eligible beneficiaries.
2. Social Security needs $13.2 trillion to stay solvent for the next 75 years
Quantifying Social Security’s monetary shortfall over the long term — defined as the next 75 years — is another jaw-dropper. Assuming Congress is unable to raise additional revenue prior to 2034, which is when the aforementioned $2.9 trillion in excess cash is expected to be depleted, Social Security is expected to be $13.2 trillion short on cash between 2034 and 2092, based on the current payout schedule.
Again, I want to reiterate that this doesn’t mean Social Security is insolvent. It simply means that keeping benefits where they are now may not be sustainable without any additional revenue and/or long-term expenditure cuts.
Democrats have proposed fixing this long-term budget shortfall by increasing payroll taxes on the wealthy. Right now, any earned income in excess of $128,400 is exempt from Social Security’s payroll tax. Thus, while more than 90% of working Americans pay into Social Security with every cent they earn, a single-digit percentage of well-to-do workers escape the payroll tax on at least some of their income. Raising or lifting the maximum taxable payroll cap would require the wealthy to pay more and bridge the long-term shortfall in the process.
As for Republicans, they’d prefer to cut expenditures over the long run by gradually increasing the full retirement age from 67, which is where it’ll peak beginning in 2022, to between ages 68 and 70. Your full retirement age is the point at which you become eligible to receive 100% of your retirement benefit, as determined by your birth year. By increasing the full retirement age, the GOP would coerce workers to wait longer to file for benefits or accept a steeper permanent reduction in their payout if they claim early. Either way, it would reduce Social Security’s long-term expenditures and eliminate the shortfall.
The irony is that both solutions work — and because they work, neither party will give an inch and meet the other in the middle, perpetuating the stalemate for a fix.
3. Just because you can’t see Social Security’s $2.9 trillion in asset reserves doesn’t mean it’s not there
Another Social Security fact you might find hard to believe (but is nonetheless true) is that Social Security really does have $2.9 trillion in asset reserves at the moment — and no, Congress didn’t raid it, steal it, or abscond with it.
Though the Social Security Trust could simply sit on the spare cash that’s been building up over the last 35 years since the program was last overhauled, doing so would make no sense. Cash loses purchasing power to inflation with each passing year.
Instead, the Social Security Administration purchases special-issue bonds, and to a smaller extent, certificates of indebtedness with various maturity dates. The entire portfolio of bonds and certificates of indebtedness had an average yield of about 2.9% as of March 2018.
What those folks who perpetuate the myth that lawmakers stole Social Security don’t realize is that the federal government already is paying interest to the Social Security program — $85.1 billion in 2017. The federal government also is making good on the full balance of any maturing bond or certificate of indebtedness. After all, these notes are backed by the full faith and credit of the U.S. government, which has a tendency to fund general revenue items with the sale of debt.
Just because you can’t see Social Security’s trillions of dollars in spare cash doesn’t mean it doesn’t exist!