It's not a new message, but it's still troubling: Social Security is steadily headed toward exhaustion. The government reported Friday that Americans will only have full Social Security benefits through 2033.
"When considered on a combined basis, Social Security's retirement and disability programs have dedicated resources sufficient to cover benefits for the next 20 years," said Treasury Secretary Jack Lew at a Friday press conference announcing the findings of the latest Social Security Trustees Report.
The trustees' 2033 estimate is unchanged from last year but also represents a marked decline compared to recent years. Ten years ago, the trustees estimated Social Security would be able to cover benefits through 2042.
That does not mean that Social Security will be entirely broke in 2033. Rather, the program would be able to provide around 75 percent of total benefits to recipients after 2033, according to Lew.
Still, lawmakers will need to act much sooner than 2033 to ensure that Social Security remains solvent. While the program's old age and survivors insurance (OASI) fund will last longer, the disability insurance trust fund will be exhausted by 2016. While lawmakers could potentially shift money from the OASI fund to cover any shortfalls, said trustee Charles Blahous, he urged lawmakers "to do [both programs] together and do it well before either trust fund faces imminent depletion."
Both funds are seeing fast increases in the number of beneficiaries they have to support. The total number of retired recipients is currently growing at a rate of around 100,000 per month, according to Social Security Administration figures. The number of disabled workers has shown remarkably fast growth in recent years. Currently, nearly 8.9 million disabled workers receive benefits, up nearly 24 percent from five years ago. Fast growth means more strain on trust funds.
Of course, the term "trust fund" is itself a little misleading. The government doesn't have a set-aside account of payroll tax dollars that it saves up to pay out to retirees. Social Security is a pay-as-you-go system, handing today's tax dollars directly over to today's retirees. And its trust fund consists of special-issue government Treasury securities — in other words, government debt. For this reason, some people say the trust fund is full of IOUs.
If Congress were to wait to tackle Social Security's funding problems, said Blahous, it could mean a much bigger bite out of paychecks. Currently, the payroll tax rate that goes toward OASDI is at 12.4 percent. If lawmakers did nothing until 2033, that rate would increase by roughly one-third, to 16.5 percent.
While it's clear that Social Security's finances need fixing, it's anything but clear how lawmakers will reach agreement on how to fix the program. Lew stressed Friday that any solution involving "deep benefit cuts or privatization" would be "unacceptable." That means conflict with ideas that top Republican lawmakers espouse. House Budget Committee Chairman Paul Ryan, for example, has supported privatization.
However, the Obama administration has already agreed to what some refer to as "benefit cuts." In April, the White House proposed using a measure called the "chained CPI" to make cost of living adjustments to Social Security benefits, a proposal that could make for smaller cost of living increases. Many Republicans had advocated using chained CPI, and the move angered some Democrats.
Despite sobering news on Social Security's funds, there was some good news today on the entitlement front. In its trustees report, Medicare reported that its Hospital Insurance Trust Fund will be depleted in 2026, two years later than estimated last year.