Social Security Sees Some Improvement, But Headwinds Remain

While there’s some good news in the Trustees report for the nation’s retirement security system, there’s also some not-so-good news.

First, the good news. The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, one year later than projected last year, according to the annual report of the Social Security Board of Trustees. If Congress does not act before then to shore up the program, there would be enough income coming in to pay 80% of scheduled benefits at that time.

In gaining the extra year of solvency, the Trustees note that the asset reserves of the combined OASI and DI Trust Funds increased by $3 billion in 2018 to a total of $2.895 trillion. Total income, including interest, to the combined OASI and DI Trust Funds amounted to slightly more than $1 trillion in 2018 ($885 billion from net payroll tax contributions, $35 billion from taxation of benefits, and $83 billion in interest). Benefits of nearly $989 billion were paid in calendar year 2018 to nearly 63 million beneficiaries, while the cost to administer the Social Security program in 2018 was $6.7 billion.

The Not-so-Good News

The not-so-good news is that the OASI Trust Fund – which pays retirement and survivor benefits – is projected to become depleted in 2034, the same as last year’s estimate, with 77% of benefits payable at that time.

What’s more, the total annual cost of the program is projected to exceed total annual income in 2020 and remain higher throughout the 75-year projection period. This would be the first time since 1982 that total annual costs have exceeded total annual income. As a result, asset reserves are expected to decline during 2020, the Trustees notes.

For all intents and purposes, however, Social Security’s cost has exceeded its non-interest income since 2010. Even though Social Security’s total income exceeded total cost by $3 billion in 2018, when interest received on trust fund asset reserves is excluded from program income, there was a deficit of $80 billion.

Not surprisingly, the Trustees once again recommend that lawmakers address these financial challenges as soon as possible. “Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare,” they advise in the report.  

One bright spot is that the disability fund has shown strong improvement. The DI Trust Fund is estimated to become depleted in 2052, extended 20 years from last year’s estimate of 2032, with 91% of benefits still payable at that time.

Congressional Action?

Rep. Richie Neal (D-MA), the Chairman of the House Ways & Means Committee (which has jurisdiction over Social Security issues) says that he intends to find solutions that provide more Americans with the economic security. “As part of that mission, I am committed not only to protecting Social Security and Medicare, but also to enhancing these programs so that they better serve recipients,” Neal stated in response to the Trustees report.

With many individuals worried that Social Security benefits won’t be available when they’re ready to retire, reducing coverage gaps and improving retirement income adequacy have been at the forefront of Congress’s 2019 agenda.